BASF Report 2016
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Massimo AgostiniBASF Report 2016
Uploaded by
Massimo AgostiniBASF Report 2016
Economic, environmental and
social performance
Chemicals
The Chemicals segment comprises our business with Key data Chemicals (million €)
basic chemicals and intermediates. Its portfolio ranges
from solvents and plasticizers to high-volume monomers 2016 2015 Change in %
and glues as well as raw materials for detergents, plas- Sales 13,461 14,670 (8)
tics, textile fibers, paints and coatings, crop protection Thereof Petrochemicals 5,035 5,728 (12)
and medicines. In addition to supplying customers in the Monomers 5,745 6,093 (6)
chemical industry and numerous other sectors, we also
Intermediates 2,681 2,849 (6)
ensure that other BASF segments are supplied with
chemicals for producing downstream products. EBITDA 3,169 3,090 3
Page 61 Income from operations (EBIT) 1,983 2,131 (7)
EBIT before special items 2,064 2,156 (4)
Performance Products
Our Performance Products lend stability, color and Key data Performance Products (million €)
better application properties to many everyday products.
Our product portfolio includes vitamins and other food 2016 2015 Change in %
additives in addition to ingredients for pharmaceuticals, Sales 15,002 15,648 (4)
personal care and cosmetics, as well as hygiene and Thereof Dispersions & Pigments 4,530 4,629 (2)
household products. Other products from this segment Care Chemicals 4,735 4,900 (3)
improve processes in the paper industry, in oil, gas and
Nutrition & Health 1,932 1,998 (3)
ore extraction, and in water treatment. They furthermore
enhance the efficiency of fuels and lubricants, the effec- Performance Chemicals 3,805 4,121 (8)
tiveness of adhesives and coatings, and the stability of EBITDA 2,522 2,289 10
plastics. Income from operations (EBIT) 1,648 1,340 23
Page 67 EBIT before special items 1,745 1,366 28
Functional Materials & Solutions
In the Functional Materials & Solutions segment, we Key data Functional Materials & Solutions (million €)
bundle system solutions, services and innovative
products for specific sectors and customers, especially 2016 2015 Change in %
the automotive, electrical, chemical and construction Sales 18,732 18,523 1
industries, as well as applications for household, sports Thereof Catalysts 6,263 6,306 (1)
and leisure. Our portfolio comprises catalysts, battery Construction Chemicals 2,332 2,304 1
materials, engineering plastics, polyurethane systems,
Coatings 3,249 3,166 3
automotive coatings, surface treatment solutions and
concrete admixtures as well as construction systems like Performance Materials 6,888 6,747 2
tile adhesives and decorative paints. EBITDA 2,906 2,228 30
Page 74 Income from operations (EBIT) 2,199 1,607 37
EBIT before special items 1,946 1,649 18
Agricultural Solutions
The Agricultural Solutions segment provides innovative Key data Agricultural Solutions (million €)
solutions in the areas of chemical and biological crop
2016 2015 Change in %
protection, seed treatment and water management as
well as for nutrient supply and plant stress. Sales 5,569 5,820 (4)
Page 80 EBITDA 1,305 1,321 (1)
Income from operations (EBIT) 1,037 1,083 (4)
EBIT before special items 1,087 1,090 0
Oil & Gas
In the Oil & Gas segment, we focus on exploration and Key data Oil & Gas (million €)
production in oil and gas-rich regions in Europe, North
Africa, Russia, South America and the Middle East. 2016 2015 Change in %
Together with our Russian partner Gazprom, we are also Sales 2,768 12,998 (79)
active in the transport of natural gas in Europe. EBITDA 1,596 2,587 (38)
Page 84 Income from operations (EBIT) 499 1,072 (53)
EBIT before special items 517 1,366 (62)
Net income 362 1,050 (66)
BASF Group 2016 at a glance
Economic data
2016 2015 Change in %
Sales million € 57,550 70,449 (18.3)
Income from operations before depreciation and amortization (EBITDA)
and special items million € 10,327 10,508 (1.7)
EBITDA million € 10,526 10,649 (1.2)
Amortization and depreciation1 million € 4,251 4,401 (3.4)
Income from operations (EBIT) million € 6,275 6,248 0.4
Special items million € (34) (491) 93.1
EBIT before special items million € 6,309 6,739 (6.4)
Financial result million € (880) (700) (25.7)
Income before taxes and minority interests million € 5,395 5,548 (2.8)
Net income million € 4,056 3,987 1.7
EBIT after cost of capital million € 1,136 194 485.6
Earnings per share € 4.42 4.34 1.8
Adjusted earnings per share € 4.83 5.00 (3.4)
Dividend per share € 3.00 2.90 3.4
Research and development expenses million € 1,863 1,953 (4.6)
Personnel expenses million € 10,165 9,982 1.8
Number of employees 113,830 112,435 1.2
Assets million € 76,496 70,836 8.0
Investments2 million € 7,258 6,013 20.7
Equity ratio % 42.6 44.5 –
Return on assets % 8.2 8.7 –
Return on equity after tax % 13.3 14.4 –
Net debt million € 14,401 12,935 11.3
Cash provided by operating activities million € 7,717 9,446 (18.3)
Free cash flow million € 3,572 3,634 (1.7)
1
Amortization of intangible assets, depreciation of property, plant and equipment, impairments and write-ups
2
Additions to intangible assets and property, plant and equipment (including acquisitions)
Value added 20163
4
Creation of value added (million €)
Business
1
2016 2015 performance
Business performance 59,852 72,981
€59,852 million
1 Cost of raw materials and merchandise (25,450) (37,323)
2015:
2 Services purchased, energy costs
and other expenses (13,658) (14,787) 3 €72,981 million
3 Amortization and depreciation (4,251) (4,401)
4 Value added 16,493 16,470
Use of value added 4.5
4.4
4.3
2016 2015 4.2
4.1 Employees 61.6% 60.6%
4.2 Government 8.6% 9.4%
4.3 Creditors 4.0% 3.9%
4.4 Minority interests 1.2% 1.9%
4.1
4.5 Shareholders (dividend and retention) 24.6% 24.2%
3
Value added results from the company’s performance minus goods and services
purchased, depreciation and amortization. Business performance includes sales
revenues, other operating income, interest income and net income from shareholdings.
Value added shows the BASF Group’s contribution to both private and public income
as well as its distribution among all stakeholders.
Innovation
2016 2015 Change in %
Research and development expenses million € 1,863 1,953 (4.6)
Number of employees in research and development at year-end 9,966 10,010 (0.4)
Employees and society
2016 2015 Change in %
Employees
Employees at year-end 113,830 112,435 1.2
Apprentices at year-end 3,120 3,240 (3.7)
Personnel expenses million € 10,165 9,982 1.8
Society
Donations and sponsorship million € 47.0 56.2 (16.4)
Environment, health, safety and security
2016 2015 Change in %
Safety, security and health
Transportation incidents with significant impact on the environment 0 0 0
Process safety incidents per one million working hours 2.0 2.1 (4.8)
Lost-time injuries per one million working hours 1.4 1.4 0
Health Performance Index4 0.96 0.97 (1.0)
Environment
Primary energy use5 million MWh 57.4 57.3 0.2
Energy efficiency in production processes kilograms of sales product/MWh 617 599 3.0
Total water withdrawal million cubic meters 1,649 1,686 (2.2)
Withdrawal of drinking water million cubic meters 20.7 22.1 (6.3)
Emissions of organic substances to water6 thousand metric tons 15.9 17.3 (8.1)
Emissions of nitrogen to water6 thousand metric tons 2.9 3.0 (3.3)
Emissions of heavy metals to water6 metric tons 23.2 25.1 (7.6)
Emissions of greenhouse gases million metric tons of CO2 equivalents 21.9 22.2 (1.4)
Emissions to air (air pollutants)6 thousand metric tons 26.7 28.6 (6.6)
Waste million metric tons 2.1 2.0 5.0
Operating costs for environmental protection million € 1,011 962 5.1
Investments in environmental protection plants and facilities million € 206 346 (40.5)
4
For more information, see page 99.
5
Primary energy used in BASF‘s plants as well as in the plants of our energy suppliers to cover energy demand for production processes
6
Excluding emissions from oil and gas production
Audits along the value chain
2016 2015 Change in %
Suppliers
Number of on-site sustainability audits of raw material suppliers 104 135 (23.0)
Responsible Care Management System
Number of environmental and safety audits 121 130 (6.9)
Number of short-notice audits 37 68 (45.6)
Number of occupational medicine and health protection audits 30 53 (43.4)
Contents
To Our Shareholders
Letter from the Chairman of the
Board of Executive Directors 7
The Board of Executive Directors of BASF SE 10
BASF on the capital market 12
Management’s Report
The BASF Group 19
Our strategy 22
Innovation 32
Investments, acquisitions and divestitures 37
Business models and customer relations 39
Working at BASF 40
Social commitment 46
The business year at BASF 47
Responsibility along the value chain 92
Forecast 111
Corporate Governance
Corporate governance report 127
Compliance 134
Management and Supervisory Boards 136
Compensation report 138
Report of the Supervisory Board 146
Declaration of Conformity 150
Declaration of Corporate Governance 150
Consolidated Financial Statements
Statement by the Board of Executive Directors 153
Auditor’s report 154
Statement of income 155
Statement of income and expense
recognized in equity 156
Balance sheet 157
Statement of cash flows 158
Statement of equity 159
Notes 160
Supplementary Information on the Oil & Gas Segment
Supplementary information on the Oil & Gas segment 223
Overviews
Ten-year summary 233
Trademarks 235
Glossary 236
Detailed tables of contents can be found on each colored
chapter divider.
Table of Contents
Welcome to BASF
Our integrated corporate
report combines financial
and sustainability reporting
to inform shareholders,
employees and the
interested public about
the 2016 business year.
Chemistry for a
sustainable future
Our innovations contribute
to a sustainable future. We
support the United Nations
in the implementation of
the U.N. Sustainable
Development Goals
(SDGs), which create the
framework for sustainable
business practices at the
economic, social and
environmental levels. In
drafting these development
goals, the United Nations
worked together with
nongovernmental
organizations, international
trade associations,
employee representatives,
scientists, policymakers
and industry. BASF was
actively involved in the
development of the SDGs
as a member of working
groups.
On the following pages, we share how BASF
contributes to the SDGs: with responsible
production, solutions for clean water, products
for sustainable agriculture and to combat
hunger, and with contributions to infrastructure,
industry and innovation.
Cover photo and page 1:
We drive digital transformation under the banner
“BASF 4.0”: In plants at the Ludwigshafen site,
employees can access information at any time using
special tablets and QR codes.
C H E M I S T R Y F O R A S U S TA I N A B L E F U T U R E
Our contribution to a
sustainable future
PRODUCTION
The BASF Verbund’s strengths lie in highly efficient,
innovative value chains that extend from basic chemicals
right through to high-value-added products. We use
resource-saving processes to make products that create
value for our customers and the environment.
Sustainable, improved production
Greater supply security combined with more
efficient and environmentally friendly production:
BASF switched over its production process for the
monomer acrylamide to a modern enzyme-based
process. Acrylamide is used for the production of
water-soluble flocculation aids in wastewater
treatment and papermaking, as well as mineral
processing and enhanced oil recovery. The bio
catalytic production method results in less waste
than the copper catalysis previously used. The
process takes place at room temperature and under
normal atmospheric conditions, resulting in energy
savings and greater environmental compatibility.
It also generates fewer by-products. BASF has
been producing bio-acrylamide in Suffolk, Virginia,
since 2014 and started up a new bio-acrylamide
plant in Bradford, England, in 2016. A third plant is
being built in Asia and should start up in 2017. With
three state-of-the-art production facilities located
directly in key markets, BASF is able to quickly and
sustainably meet regional d emand.
For more on bio-polyacrylamide, see
basf.com/bioacrylamide
Milestone: To bolster its worldwide
polyacrylamide production network, BASF
started up the new world-scale production
plant for bio-acrylamide in Bradford, England.
Production in North America:
BASF has been producing bio-acrylamide
in Suffolk, Virginia, since 2014.
C H E M I S T R Y F O R A S U S TA I N A B L E F U T U R E
Naturally lighter
“Weight savings” is a key term in
modern automotive engineering, as
lighter vehicle components reduce fuel
consumption and carbon emissions for
the end customer. To produce
lightweight, innovative auto parts
made from environmentally friendly
substances, manufacturers need the
right materials from the supplier Lighter weight: The binding agent
industry. Such as BASF’s binding Acrodur ® 950 L provides the strength
and heat-resistance needed in the
agent Acrodur®: The acrylic resin can
world’s first vehicle roof frame made
be processed in a simple and entirely of natural fibers.
especially environmentally friendly
manner; the only by-product generated
is water. Acrodur® is used, for
example, in collaboration with partners
to create a new vehicle roof frame
using renewable hemp. The natural
fiber construction is strengthened with
Acrodur®, making the roof frame up to
40% lighter compared with regular
steel components.
For more information, see
basf.com/nonwovens
C H E M I S T R Y F O R A S U S TA I N A B L E F U T U R E
WAT E R
Water is a valuable resource. It needs to be
handled responsibly, and new methods of
wastewater treatment are in demand. Two
examples show how BASF helps.
Purified by the sun
Clean water is essential for our health. We
need new and simple solutions to produce safe
drinking water – especially in developing
countries where traditional, energy-intensive
methods of water treatment are difficult to put
into practice. At the United States’ Louisiana
State University, new ideas have room to
develop: As the major sponsor, BASF provided
the university’s College of Engineering with
$1 million to help construct the BASF Sustainable
Living Laboratory. The laboratory, in operation
since fall 2016, focuses on researching
sustainable solutions for global challenges.
Dr. Kevin McPeak is the lab’s first scientist in
residence. He and his team are working on
portable filtration and disinfection systems for
drinking water. “We are investigating light-driven
oxidation processes that safely and effectively
inactivate pathogens,” McPeak explains. Instead
of the ultraviolet light used in traditional methods
for sun-supported water treatment, he harnesses
visible sunlight. Ultraviolet light makes up a mere
5% of the solar spectrum. By contrast, visible
light accounts for more than 40% of the
spectrum, which means that McPeak harnesses
several times as much energy than traditional
methods. This, in turn, allows for quicker and
more effective disinfection. With his research,
McPeak wants to create a simple and
inexpensive solution for developing countries to
transform polluted water into drinking water.
Clean water: Dr. Kevin McPeak
is a scientist in residence at the
BASF Sustainable Living Laboratory
at Louisiana State University. He
researches portable filtration and
disinfection systems for drinking water
– harnessing visible sunlight.
Largest water treatment plant Tiny helpers, big impact
on the Rhine: The BASF wastewater
treatment plant in Ludwigshafen, BASF’s wastewater treatment plant is one of
Germany, purifies almost 100 million the largest in Europe. It purifies nearly 100 million
cubic meters of the company’s
cubic meters of wastewater from BASF’s
production water every year. Even
wastewater from the surrounding production each year, in addition to another
towns and communities is purified. 20 million cubic meters of wastewater from
the German towns of Ludwigshafen, Frankenthal
and Bobenheim-Roxheim. The core of the plant
is biological purification: Bacteria transform
polluted water into sewage sludge, carbon
dioxide (CO2) and water. Keeping the wastewater
moving and the bacteria supplied with oxygen
requires a lot of energy. Without changing water
volume or quality, BASF has increased the plant’s
energy efficiency by 28% compared with 2012
and reduced costs by around €3 million over this
period. In addition, 18,000 fewer metric tons of
CO2 are emitted annually. “Efficient biological
purification is the key to our success. Solid
matter is already better separated in the
precleaning phase, reducing not only the amount
of pollution in the biological pools, but also the
energy requirement for aeration,” explains plant
manager Dr. Peter Schmittel. BASF also reduced
the bacteria concentration by 50%. The
remaining bacteria are better supplied with
A better energy
footprint: Dr. Peter oxygen, which enables them to work even
Schmittel is manager of more efficiently.
the wastewater treatment For more on the water treatment plant, see
plant. He and his team basf.com/wastewater-treatment-plant
work on improving the
facility’s energy footprint
– with great success.
C H E M I S T R Y F O R A S U S TA I N A B L E F U T U R E
FOOD
In 2050, nearly ten billion people will live on Earth. Our
innovative solutions for efficient and environmentally
friendly agriculture and animal feed make an important
contribution toward keeping people supplied with s ufficient
and nourishing food.
Improved feed conversion
Sustainability is a core criterion in the
development of BASF’s feed additives
portfolio. This means we not only
evaluate additives based on their
nutritional value, we also consider
additional positive effects on animal
feed and the environment. In pig and
poultry feeding, the enzyme Natuphos®
improves digestion of important
nutrients such as phosphorus,
proteins, calcium and zinc. The feed
is more environmentally friendly, as
the animals excrete less phosphorus,
reducing the impact on water. Thanks
to Natuphos®, the animals are also
better able to utilize the energy from
their food, reducing the overall feeding
costs. In pig farming, adding the
organic acid Amasil® lowers the pH
value of the pigs’ food, creating an
environment that is inhospitable to
harmful bacteria. The lower amount
of bacteria consumed reduces the
animals’ microbial load, improving their
vitality. Furthermore, Amasil® extends
the food’s shelf life, enabling farmers
to provide their animals with the
needed nutrients in high quality.
For more on feed additives, see:
animal-nutrition.basf.com
Enzymes for sustainable agriculture: The animal
feed additive Natuphos® helps farmers raise
healthy animals.
Knowledge on a global scale Networked research: The new research
and development center in Limburgerhof,
BASF opened a new research and Germany, is part of our global network of
development center for biological crop R+D sites and testing centers for biological
crop protection and seed treatment solutions.
protection and seed solutions in
Limburgerhof, Germany. Together with
other research sites in Brazil, Argentina,
France, England, South Africa, China,
Australia, the United States and Canada,
Limburgerhof is part of an international
network of expertise. Its goal is the global
exchange of research results that have
been tried and tested in different climate
zones and under various local parameters.
In this network, BASF researches naturally Protected seeds: Seed treatments
occurring organisms and cultures and their and refining support plants’ undisturbed
potential use in biological crop protection. development from the very beginning.
This is how we pursue our goal of supple- This later increases yields.
menting our classic portfolio of chemical
crop protection and offering farmers an
even more comprehensive product
portfolio. We combine knowledge of
biological microorganism fermentation with
chemical formulation expertise and
develop new solutions for better seed
treatment. Farmers then profit from seeds
that provide plants with all-around
protection from the very beginning.
Sowing is simulated and optimized in
order to provide farmers with the best
possible application and handling.
For more on crop protection solutions, see
basf.com/agro
C H E M I S T R Y F O R A S U S TA I N A B L E F U T U R E
I N F R A S T R U C T U R E , I N D U S T R Y, I N N O V A T I O N
Infrastructure, industry and innovation are three important
pillars of sustainable development. While infrastructure provides
the basic foundation for all business processes, innovations –
such as in the field of digitalization – expand our technological
possibilities.
Driving digital transformation
The BASF 4.0 project team is evaluating possibilities
for more intensive use of digital technologies and
business models, and drives the digital trans
formation of BASF. Under the banner “Smart
Manufacturing,” BASF implements digital
technologies and applications in its plants with the
goal of making production more efficient and even
safer. This includes the “predictive maintenance”
approach. A model-based analysis of the data can,
for example, better predict the optimal point in time
for maintenance measures, reducing unscheduled
repairs and shutdowns and optimizing coordination
between maintenance and production processes.
The steam cracker – the heart of production in
Ludwigshafen – already uses predictive
maintenance through the application of
state-of-the-art information and automation
technology. Several thousand sensors track process
data, like pressure and temperature, around the
clock in order to monitor and optimally direct the
plant. Another Smart Manufacturing project is
“Augmented R eality.” Plant employees are
supported in their work with industry-specific tablet
devices that p rovide access at any time to digital
information. Working processes are made more
transparent and efficient.
Smart Manufacturing: The steam cracker in
Ludwigshafen has state-of-the-art information
and automation technology at its disposal.
Digital and mobile:
Special tablet devices
give plant employees
access to information
at any time.
C H E M I S T R Y F O R A S U S TA I N A B L E F U T U R E
Expertise for big visions
Delhi is one of the largest cities in the world. The
pulsing metropolis of over 16 million people is one of the most
important centers of commerce and trade in India. After the
expansion of its metro, over 270 stations along approximately
330 kilometers of rail will run under the surface of the city.
To date, only the cities of London, Seoul, Tokyo and Beijing
boast larger subway networks. Construction projects on this
scale would hardly be possible without innovative and robust
construction materials. For the expansion of the Delhi Metro,
the BASF team in India won the project tender with their
customized concept proposal, including the use of BASF
waterproofing solutions for concrete. BASF’s Master Builders
Solutions line of concrete solutions are currently used in
underground transport systems all over the world, such as
in China, Singapore, the United States and Poland. Railway
tunnel construction is another area that uses BASF’s construc-
tion chemicals solutions. In Switzerland, for example, concrete
additives and cement-based injections for waterproofing were
employed in building the world’s longest rail tunnel, the
Gotthard Base Tunnel, and its feeder, the Ceneri Base Tunnel.
Especially in megaprojects, the high performance of BASF
construction chemicals in sometimes extremely demanding
conditions is an important distinguishing feature.
Delhi Metro: BASF developed
customized concrete waterproofing For more on our construction chemicals, see
master-builders-solutions.basf.com
solutions for the subway system of
the Delhi, India, metropolitan region.
How we create value BASF Report 2016
Our foundation
€32.6 billion €7.3 billion
in equity invested in fixed and
€69 million
spent on further
€206 million invested in environmental
intangible assets (including
€34 billion
acquisitions) education protection
€1.86 billion
spent on research
and development €10.17 billion worth of raw materials,
goods and services
in personnel expenses purchased for own
production
30,000
1,649 15.0 40.7
5.4%
different
raw materials million m3 million MWh million MWh
procured of raw materials of water of electricity of steam demand
purchased worldwide abstracted demand
from renewable resources
Training:
118,000 75,000
employees and
121
environmental,
30
sites
enrollments
contractors at around safety and audited on
in courses on
occupational safety 350 security audits
performed at
occupational
medicine and
and sites participate in
80
health
13,000 worldwide safety initiative
sites protection
on process safety
113,830
employees 84.6% Numerous options for
balancing personal and
worldwide, Average of of our senior
professional life worldwide;
of which
3,120 Around 2.0 executives have
international
experience
in Ludwigshafen, Germany,
for example,
apprentices 10,000 days of further
training per 600
employees in research employee each year employees make use of these
and development opportunities daily
around 90% 56
Our stakeholders
include customers, employees, Over
of raw materials,
goods and services
104
raw material
external
compliance
suppliers and shareholders,
as well as experts in science,
70,000 for own production
sourced locally
supplier sites hotlines
suppliers audited
industry, politics, society and
media
Our business model
5
segments
13
operating divisions
86
strategic business units
▪▪ Chemicals
BASF Group
▪▪ Performance Products companies
▪▪ Functional Materials & in more than
Solutions
▪▪ Agricultural Solutions 80
countries
▪▪ Oil & Gas
Intelligent
Verbund system
6
Verbund sites and
352
additional production sites worldwide
Our corporate purpose:
We create chemistry
for a sustainable future
More than 130,000 customers
With our broad portfolio, we serve customers
from many different sectors – from major global
customers to local workshops.
Market success based Values as guideline for
on strategic principles our conduct and actions
▪▪ We add value as one company ▪▪ Creative
▪▪ W
e innovate to make our customers ▪▪ Open
more successful ▪▪ Responsible
▪▪ We drive sustainable solutions ▪▪ Entrepreneurial
▪▪ We form the best team
Corporate Governance
Our results
€57.6 billion
in sales, of which €6.28 billion
around €10 billion
in EBIT Net income of
€4.1 billion
€3.00 €1.1 billion
in income
from innovations dividend per share taxes
on the market since €6.31 billion
2011 in EBIT before
special items
Greenhouse gas emissions:
14.0 million MWh
fuel saved through Verbund system
21.9 million Customers’ use of BASF’s climate
protection products avoids
1,644 metric tons
of CO2 equivalents 540 million
million m3 metric tons
of water discharged of CO2 equivalents
Process safety Over
60,000
incidents:
decline to
Number of lost-time injuries 0
transportation incidents
2.0 product applications
assessed and rated
per one million working per one million for aspects of
hours with significant impact on
working hours sustainability
the environment
1.4
Proportion of
women in
executive positions
Around
19.8 % 36.4 %
Around
850
Proportion of
3,000 non-German
senior executives
projects in patents filed
research pipeline worldwide
€47.0 million 2
In cases
spent on donations and
sponsorship
Around
600
we terminated
our collaboration
with suppliers as
278
phone calls and emails
Involved in universities, research a result of received by external
UN Global Compact institutions and companies unsatisfactory compliance hotlines
since 2000 within our global network sustainability
performance
How we create value BASF Report 2016
How we create value
BASF’s success is supported by both financial and nonfinancial
value drivers. We want to understand how these interact, and derive
targeted measures for increasing the positive impact of our actions
and further minimizing the negative effects. This intention forms the
basis of our integrated reporting.
The following overview provides examples of how we create value
for our company, the environment and society. It is modeled on the
framework of the International Integrated Reporting Council (IIRC).
Both financial and nonfinancial value drivers – such as environmental,
production-related, personnel and knowledge-based factors, along
with aspects of society and partnerships – form the foundation of
our actions. Through our business model these inputs are
transformed into various outputs – the results of our actions.
2 About This Report BASF Report 2016
About This Report
Integrated reporting
This integrated report documents BASF’s economic, environmental and social
performance in 2016. We use examples to illustrate how sustainability contributes
to BASF’s long-term success and how we as a company create value for our
customers, employees, shareholders, business partners, neighbors and the public.
Further information
The following symbols indicate important information for the reader:
You can find more information within the report.
You can find more information on our website.
This section shows how the ten principles of the U.N. Global Compact and
the Blueprint for Corporate Sustainability Leadership are implemented.
If the symbol is underlined, the entire chapter is relevant.
The BASF Report online
HTML version with additional features: basf.com/report
PDF version available for download: basf.com/basf_report_2016.pdf
BASF Report 2016 About This Report 3
Content and structure Requirements and topics
▪▪ As an integrated report, the BASF Report also serves ▪▪ Financial reporting according to International
as a progress report in terms of U.N. Global Compact Financial Reporting Standards, German Commercial
▪▪ Sustainability reporting follows Global Reporting Code and German Accounting Standards
Initiative’s G4 “comprehensive” international ▪▪ Sustainability reporting focused on material topics
guidelines
The information on the financial position and performance of
The BASF Report combines the major financial and non- the BASF Group is based on the requirements of International
financial information necessary to thoroughly evaluate our Financial Reporting Standards (IFRS), and, where applicable,
performance. We select the report’s topics based on the the German Commercial Code, the German Accounting
following reporting principles: materiality, sustainability con- Standards (GAS), and the guidelines on alternative perfor-
text, completeness, balance, and stakeholder inclusion. In mance measures from the European Securities and Markets
addition to our integrated report, we publish further information Authority (ESMA). Internal control mechanisms ensure the
online. Links to this supplementary information are provided reliability of the information presented in this report. BASF’s
in each chapter. management confirmed the effectiveness of the internal con-
Our sustainability reporting has been based on Global trol measures and compliance with the regulations for financial
Reporting Initiative (GRI) standards since 2003 already. For reporting.
the BASF Report 2016, we have chosen the GRI’s “compre- The focus and boundaries of this report are based on the
hensive” disclosure criteria. results of the materiality analysis together with a strategic
In addition, we served as a pilot enterprise in the develop- evaluation defining key aspects of the value chain.
ment of the framework for integrated reporting of the Interna- For more on the Global Reporting Initiative, see globalreporting.org
tional Integrated Reporting Council (IIRC). Following this pilot For more on our selection of sustainability topics, see page 29 onward
and basf.com/materiality
phase, we have been active in the IR Business Network since
For more on our control and risk management system,
2014 in order to discuss our experience with other stake see page 111 onward
holders and at the same time receive inspiration for enhancing
our reporting. This report addresses elements of the IIRC
framework by, for example, using graphics to illustrate how we
create value or demonstrate the relationships between finan-
cial and nonfinancial performance in the chapters for the seg-
ments. The information in the BASF Report 2016 also serves
as a progress report on BASF’s implementation of the ten
principles of the United Nations Global Compact and takes
into consideration the Blueprint for Corporate Sustainability
Leadership of the Global Compact LEAD platform.
The GRI and Global Compact Index can be found in the
online report, providing information on GRI indicators and
topics relevant to the Global Compact principles.
The 2016 Online Report can be found at basf.com/report
For more on sustainability, see basf.com/sustainability
For more on the Global Compact, the implementation of the
Global Compact principles, Global Compact LEAD and Blueprint
for Corporate Sustainability Leadership, see globalcompact.org and
basf.com/en/global-compact
The GRI and Global Compact Index can be found at basf.com/en/gri-gc
An illustrated example of BASF’s business model as geared toward
the IIRC framework can be found in the introduction under “How we
create value”
4 About This Report BASF Report 2016
Data External audit and evaluation
▪▪ Relevant information included up to the editorial Our reporting is audited by a third party. KPMG AG Wirtschafts-
deadline of February 21, 2017 prüfungsgesellschaft has audited the BASF Group Consoli
dated Financial Statements and the Management’s Report
All information and bases for calculation in this report are and has approved them free of qualification. The audit of the
founded on national and international standards for financial Consolidated Financial Statements including the Notes is
and sustainability reporting. The data and information for the based on the likewise audited financial statements of the
reporting period were sourced from the expert units responsi- BASF Group companies.
ble using representative methods. The reporting period was Statements and figures pertaining to sustainability in the
the 2016 business year. Relevant information is included up to Management’s Report and Consolidated Financial Statements
the editorial deadline of February 21, 2017. The report is pub- are also audited. The audit was conducted using ISAE 3000
lished each year in English and German. (Assurance Engagements other than Audits or Reviews of
BASF Group’s scope of consolidation for its financial Historical Financial Information) and ISAE 3410 (Assurance
reporting comprises BASF SE, with its headquarters in Lud- Engagements on Greenhouse Gas Statements), the relevant
wigshafen, Germany, and all of its fully consolidated material international auditing standards for sustainability reporting.
subsidiaries and proportionally included joint operations. The additional content provided on the BASF internet sites
Shares in joint ventures and associated companies are indicated in this report is not part of the information audited by
accounted for, if material, using the equity method in the BASF KPMG.
Group Consolidated Financial Statements. The Auditor’s Report can be found on page 154
The chapter “Working at BASF” refers to employees active The Assurance Report on sustainability information in the
BASF Report 2016 can be found at basf.com/sustainability_information
in a company within the BASF Group scope of consolidation
as of December 31, 2016. Our data collection methods for
environmental protection and occupational safety are based Forward-looking statements
on the recommendations of the European Chemical Industry
Council (CEFIC). This report contains forward-looking statements. These state-
In the chapter “Environment, Health, Safety and Security,” ments are based on current estimates and projections of
we report all data on the emissions and waste of the world- BASF management and currently available information. Future
wide production sites of BASF SE, its subsidiaries, and joint statements are not guarantees of the future developments and
operations based on our stake.1 Work-related accidents1 at results outlined therein. These are dependent on a number of
all sites of BASF SE and its subsidiaries as well as joint factors; they involve various risks and uncertainties; and they
operations and joint ventures in which we have sufficient are based on assumptions that may not prove to be accurate.
authority in terms of safety management, are compiled world- Such factors include those discussed in the Opportunities and
wide regardless of our stake and reported in full. Further data Risks Report from pages 111 to 118. We do not assume any
on transportation safety1 and social responsibility refers to obligation to update the forward-looking statements contained
BASF SE and its subsidiaries unless otherwise indicated. in this report.
For more on companies accounted for in the Consolidated Financial
Statements, see the Notes from page 172 onward
For more on emissions, see page 103 onward
The Consolidated Financial Statements begin on page 151
1
Excluding the Chemetall business acquired from Albemarle Corp., Charlotte, North Carolina, in December 2016
1
To Our Shareholders
To Our Shareholders
Management’s Report 17
Corporate Governance 125
Consolidated Financial Statements 151
Supplementary Information on the Oil & Gas Segment 221
Overviews 231
Letter from the Chairman of
the Board of Executive Directors 7
The Board of Executive Directors of BASF SE 10
BASF on the capital market 12
BASF Report 2016 To Our Shareholders 7
Letter from the Chairman of the Board of Executive Directors
Dear Shareholder,
In 2016, we achieved the goals we set for ourselves for growth and earnings. We successfully
grew in the chemicals business and further improved profitability. It was foreseeable that earnings
in Oil & Gas would not match the previous year’s level. The oil price declined further – by around
15%, to an average of $44 per barrel for Brent crude in 2016. Furthermore, we had divested our
gas trading and storage business in the third quarter of 2015. As a result, BASF Group’s EBIT
before special items of €6.3 billion was slightly lower overall, down by 6% versus the previous
year. As expected, sales declined considerably, by 18% to €57.6 billion.
2016 also painfully demonstrated to us that, despite all our caution and protective measures,
risks in the chemical industry cannot be ruled out. In October an accident occurred during main-
tenance work on a pipeline at the Ludwigshafen site. An explosion resulted in the deaths of four
people. Our sympathy is with their families and friends. We are doing everything we can to fully
investigate the accident and we will continue to be open and transparent in reporting the findings.
If there are ways of further improving our safety, we will pursue them.
The BASF team worked hard to quickly implement solutions to the initial major disturbances to
the logistics supplying the site. As a result, the economic consequences are considerably smaller
than had been expected in the immediate aftermath of the accident. This was an impressive
demonstration of the strength of the BASF team. And for this as well, I would like to extend a
heartfelt thanks to all employees on behalf of the Board of Executive Directors, especially since
2016 was also a challenging business year.
2016 got off to a weak start with the oil price at times dipping below $30 per barrel for Brent
crude. Our customers were feeling uncertain and were hesitant to place orders. In the first
quarter we did not achieve any volume growth. Throughout the rest of the year the impact of
our strict spending and cost-discipline measures continually increased. Our excellence program
DrivE also delivered the anticipated contributions. Both of these factors played a role in the
positive earnings momentum.
As the year progressed, we were able to increase BASF’s growth. Our sales volumes rose
from quarter to quarter. Particularly in Asia, we continuously increased our sales volumes in the
chemicals business and grew strongly. This shows that the high investments we made in re-
search and development and new production capacity in recent years are paying off. The Perfor-
mance Products and Functional Materials & Solutions segments, where we provide our custom-
ers with tailor-made solutions for their applications, contributed in particular to this. In both of
these segments we significantly improved our profitability, even more than we had expected one
year ago. In the Chemicals segment, our earnings nearly matched the previous year’s level and
were thus slightly better than expected. Despite considerable price erosion for many products as
a result of lower raw material prices, we were able to keep margins stable in many cases.
8 To Our Shareholders BASF Report 2016
Letter from the Chairman of the Board of Executive Directors
Our crop protection business performed moderately well in a difficult market environment.
Volumes were below the prior-year level, but we managed to keep EBIT before special items
stable thanks to strict cost management – we consider this a solid result compared with other
industry players.
In the Oil & Gas business we made dramatic adjustments to our costs and expenditures in
response to the changing market conditions. As expected, sales and earnings in the segment
were significantly below the previous year’s level. An important development was our increased
production of oil and gas in 2016. Following the sale of our gas trading business we are
concentrating on the exploration and production of oil and gas.
“The chemicals We want to create value for our shareholders. The benchmark for this is positive EBIT after cost
business and our of capital. The considerable improvement in 2016 is especially satisfying because the chemicals
crop protection business and our crop protection business successfully contributed to this. We were thus able to
business more than offset the price-related negative contribution from our Oil & Gas business.
successfully
contributed to As a shareholder, you deserve to appropriately share in this success. We are continuing our
considerable dividend policy and propose to raise the dividend again, by 10 cents to €3.00 per share. BASF
improvement in shares thus once again offer a high dividend yield of 3.4% based on the closing share price at
EBIT after cost of the end of 2016.
capital.”
The BASF share price trend in 2016 reflected the earnings momentum as well as future
expectations. In a volatile market environment our share price developed positively. It closed out
the year at €88.31, around 25% higher than at the end of the previous year. The performance of
our shares was also impressive: With dividends reinvested, the value of our shares rose by 30%,
thus considerably outperforming the DAX 30 (7%), Dow Jones Euro Stoxx 50 (4%) and MSCI
World Chemicals (11%) Indexes.
Five years ago, we introduced our “We create chemistry” strategy. It focused on growth from
investments, innovation and the further development of our portfolio.
In recent years, we have increased our investments in new plants worldwide. We have thus
created the conditions to enable organic growth. After a phase of high investments, especially in
emerging markets, we scaled these back in 2016 as previously announced. In the coming years
we plan to invest at a comparable level. We are now filling the existing capacity in our plants and
we want to build on the volume growth momentum seen last year.
Innovation and sustainability – which are closely related – are key pillars of our strategy. In order
to offer customized solutions to our customers in the various regions and markets, we have
continuously expanded our global research and development activities. In 2016 we further
“We have developed our approach to innovation. Our researchers are working on using digital technologies
bundled, even more. We are integrating digital technologies in our research processes and using data
focused and to explore new questions. We also want to make greater use of scientific models to predict
accelerated the properties of chemical structures. These measures help us strengthen our long-term
our digitalization competitiveness and take advantage of new growth opportunities.
activities under
the name Digitalization will change BASF in other areas, too. We have bundled, focused and accelerated
BASF 4.0.” our digitalization activities under the name BASF 4.0. The digital transformation will influence the
way we manage our factories in the future, how we work seamlessly with our suppliers and
customers, and how we tap and develop new business opportunities and markets. This report
contains examples of how we are doing this. We see digitalization as an opportunity for BASF
and for our employees – and we will actively shape it.
BASF Report 2016 To Our Shareholders 9
Letter from the Chairman of the Board of Executive Directors
We also want to continue to grow profitably with acquisitions. In 2016 we purchased Chemetall,
a leading global supplier of surface treatments. Chemetall’s products can, for example, protect
metals from corrosion or facilitate their machining. They are used in industries such as automotive
and aerospace. This business is very close to customers and perfectly complements our coatings
activities. At the same time, we have divested activities that were no longer an optimal fit for our
portfolio, such as the industrial coatings and polyolefin catalysts businesses, which we success-
fully sold.
The process of structural change in the chemical industry continues, following what appear to
be the prevailing trends. BASF adheres to simple principles: Every business should achieve a
leading market position if possible and be successful on its own – especially in comparison with
its direct competitors. And each business benefits from BASF and from our Verbund – not only in
production and logistics but also in research and development and with customers. The Verbund
is and will remain the core of BASF. It demands and fosters excellence.
In 2017, we want to grow further and all segments should contribute to this. More importantly, “In 2017, we want
our earnings should rise again, also in the Oil & Gas business, where we assume an average to grow further
oil price of $55 per barrel of Brent crude in 2017. Business so far this year is in line with our and all segments
expectations. These expectations are also based on the assumptions that economic conditions should contribute
will be similar to 2016 and chemical production worldwide will rise by around 3.4%. to this.”
However, political uncertainties in particular have rarely been this high. The impact of Brexit
remains unpredictable; it affects our competitiveness as well as that of our customers in our
home market of Europe, where, moreover, important elections are taking place. Protectionism
may seem sweet at first, but it is poison. Around the world, we are seeing a trend towards trying
to create prosperity through isolation rather than cooperation. This is another reason why our
strategy of producing as much as possible in the local markets is still the right approach.
In the long term, Asia will continue to be the growth driver in the global chemicals market. And “In the growth
China is by far the largest market. In the growth markets in particular we have systematically markets in
invested in production, research and development and sales and marketing. We can therefore particular we have
offer our local customers tailor-made solutions and successfully participate in this growth. systematically
invested in
We are cautiously optimistic for 2017. In light of the major uncertainties, we will continue production,
our strict discipline with respect to expenditures and costs. An ongoing task is the further research and
development of our portfolio. We will continue to drive forward the digital transformation in our development and
research and development, in production and in the development of new business models that sales and
connect us even more closely with our customers. I can assure you that the BASF team is full of marketing.”
energy and drive – and we will prove it once again in 2017.
Yours,
Kurt Bock
10 To Our Shareholders BASF Report 2016
The Board of Executive Directors of BASF SE
The Board of Executive Directors
of BASF SE
Dr. Kurt Bock
Chairman of the Board of Executive Directors
Dr. Martin Brudermüller
Vice Chairman of the Board of Executive Directors
Dr. Hans-Ulrich Engel
Chief Financial Officer
Michael Heinz
BASF Report 2016 To Our Shareholders 11
The Board of Executive Directors of BASF SE
Wayne T. Smith
Dr. Harald Schwager
Margret Suckale
Sanjeev Gandhi
12 To Our Shareholders BASF Report 2016
BASF on the capital market
BASF on the capital market
€88.31 €3.00 DJSI World, CDP
BASF share closing price up by Proposed dividend BASF once again included
24.9% year-on-year per share in sustainability indexes
Stock markets in 2016 were again marked by a high level subsequently recovered thanks to factors such as improved
of volatility. Particularly contributing to this were fluctuat- Chinese economic data and the U.S. Federal Reserve’s initially
ing economic figures in China, crude oil prices and the unchanged interest rate policy. In the fourth quarter, the exten-
referendum in the United Kingdom on E.U. membership. sion of the European Central Bank’s bond-buying program as
In this volatile environment, the BASF share rose by well as hopes for a growth-promoting economic policy from
24.9%, trading at €88.31 at the end of 2016. We stand by the newly elected U.S. president led to a year-end rally. On
our ambitious dividend policy and will propose a dividend December 30, 2016, Germany’s benchmark index, the
of €3.00 per share at the Annual Shareholders’ Meeting – DAX 30, reached a year’s high of 11,481 points, as did the
an increase of 3.4% compared with the previous year. BASF share price at €88.31. This equates to a 24.9% rise in
BASF enjoys solid financing and good credit ratings. the value of BASF shares compared with the previous year’s
closing price. Assuming that dividends were reinvested, BASF
BASF share performance shares gained 30.1% in value in 2016. The BASF share thus
outperformed the German and European stock markets,
▪▪ BASF share gains 24.9% in 2016 whose benchmark indexes DAX 30 and DJ EURO STOXX 50
▪▪ Long-term development continues to clearly gained 6.9% and 3.7% over the same period, respectively. As
outperform benchmark indexes for the global industry indexes, DJ Chemicals increased 10.8%
in 2016 and MSCI World Chemicals 11.2%.
Weak economic data from the United States and China as well Viewed over a five and ten-year period, the long-term
as turbulence in the crude oil market led to a negative start to performance of BASF shares still clearly surpasses these
the 2016 stock market year. Gains in oil prices, solid U.S. labor indexes. The assets of an investor who invested €1,000 in
market data and better economic indicators for China led to BASF shares at the end of 2006 and reinvested the dividends
stock market recovery during the second quarter. The uncer- in additional BASF shares would have increased to €3,538 by
tainty leading up to the United Kingdom’s referendum on E.U. the end of 2016. This represents an annual yield of 13.5%,
membership influenced the further course of the second placing BASF shares above the returns for the DAX 30 (5.7%),
quarter. Stock markets suffered considerable losses following EURO STOXX 50 (0.9%) and MSCI World Chemicals (7.0%)
the vote on June 23, 2016, to leave the E.U. Share prices indexes.
Change in value of an investment in BASF shares in 2016
(With dividends reinvested; indexed)
140 140
130 130
120 120
110 110
100 100
90 90
80 80
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
BASF share 30.1% DAX 30 6.9% MSCI World Chemicals 11.2%
BASF Report 2016 To Our Shareholders 13
BASF on the capital market
Long-term performance of BASF shares compared with indexes Broad base of international shareholders
(Average annual increase with dividends reinvested)
With over 500,000 shareholders, BASF is one of the largest
2011–2016 14.4%
publicly owned companies with a high free float. An analysis of
14.2%
the shareholder structure carried out at the end of 2016
10.5%
showed that, at 18% of share capital, the United States and
11.8%
Canada made up the largest regional group of institutional
2006–2016 13.5%
investors. Institutional investors from Germany accounted for
5.7%
11%. Shareholders from the United Kingdom and Ireland hold
0.9%
11% of BASF shares, while institutional investors from the rest
7.0%
of Europe hold a further 17% of capital. Approximately 29%
BASF share DAX 30 EURO STOXX MSCI World Chemicals of the company’s share capital is held by private investors,
most of whom reside in Germany. BASF is therefore one of the
DAX 30 companies with the largest percentage of private
shareholders.
Weighting of BASF shares in important indexes
as of December
31, 2016
Shareholder structure (by region)
6
DAX 30 8.7%
1 Germany 40% 5
DJ Chemicals 6.5%
2 United States and Canada 18% 1
MSCI World Index 0.3% 4
3 United Kingdom and Ireland 11%
4 Rest of Europe 17%
5 Rest of world 5%
Proposed dividend of €3.00 per share 6 Not identified 9% 3
2
At the Annual Shareholders’ Meeting, the Board of Executive
Directors and the Supervisory Board will propose a dividend
payment of €3.00 per share. We stand by our ambitious divi- Employees becoming shareholders
dend policy and plan to pay out nearly €2.8 billion to our
shareholders. Based on the year-end share price for 2016, In many countries, we offer share purchase programs that
BASF shares offer a high dividend yield of 3.4%. BASF is part turn our employees into BASF shareholders. In 2016, for
of the DivDAX share index, which contains the fifteen compa- example, around 24,000 employees (2015: 21,600) purchased
nies with the highest dividend yield in the DAX 30. We aim to employee shares worth about €59 million (2015: €60 million).
increase our dividend each year, or at least maintain it at the For more on employee share purchase programs, see page 45
previous year’s level.
Dividend per share1 (€ per share)
2.90 3.00
2.70 2.80
2.50 2.60
2.20
1.95 1.95
1.70
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
1
Adjusted for two-for-one stock split conducted in 2008
14 To Our Shareholders BASF Report 2016
BASF on the capital market
BASF a sustainable investment Good credit ratings and solid financing
▪▪ BASF once again included in DJSI World Rated “A1/P-1/outlook stable” by Moody’s and “A/A-1/out-
sustainability index in 2016 look stable” by Standard & Poor’s, BASF enjoys good credit
▪▪ CDP again awards BASF leadership status and ratings, especially compared with competitors in the chemical
honors company’s sustainable water management industry. Rating agency Scope has also been evaluating
our creditworthiness since September 2016. It rates BASF at
In September 2016, BASF shares were included in the Dow “A/S-1/outlook stable.”
Jones Sustainability World Index (DJSI World) for the sixteenth At the end of 2016, the financial indebtedness of the BASF
year in succession. As one of the most well-known sustain- Group was €16.3 billion. Liquid funds including marketable
ability indexes, the DJSI World represents the top 10% of the securities amounted to €1.9 billion. The average maturity of
2,500 largest companies in the S&P Global Broad Market our financial indebtedness was 5.6 years. The company’s
Index based on economic, environmental and social criteria. medium to long-term debt financing is predominantly based
BASF has participated in CDP’s environmental data repor on corporate bonds with a balanced maturity profile. In 2016,
ting program since 2004. The CDP represents more than 820 BASF issued several bonds to finance, among other things,
institutional investors who manage over $100 trillion in assets. the acquisition of Chemetall. For short-term debt financing,
The CDP’s indexes serve as assessment tools for investors. In BASF SE has a commercial paper program with an issuing
2016, BASF achieved a rating of A- and gained leadership volume of up to $12.5 billion. As backup for the commercial
status once again. In an analysis of the largest 350 enterprises paper program, there are committed, broadly syndicated
in Germany, Austria and Switzerland by market capitalization, credit lines of €6 billion available; these are not being used at
CDP named BASF among five companies whose efforts have this time.
contributed significantly to a reduction in environmental emis- For more on financial indebtedness and maturities, see page 56 onward
and the Notes from page 204 onward
sions. In addition, BASF was one of 24 companies in 2016,
out of a total of 607 assessed by CDP, to receive the top grade
of “A” for sustainable water management, putting it among the Analysts’ recommendations
world’s leading enterprises in this area.
For more on the key sustainability indexes, see Around 30 financial analysts regularly publish studies on BASF.
basf.com/sustainabilityindexes
At the end of 2016, 43% recommended buying our shares
For more on energy and climate protection, see page 103 onward
(end of 2015: 32%) and 39% recommended holding them
(end of 2015: 40%), while 18% had a sell rating (end of 2015:
28%). The average target share price ascribed to BASF by
analysts was €79.65 in December 2016.
Continuously updated analyst estimates on BASF are available at
basf.com/share
BASF Report 2016 To Our Shareholders 15
BASF on the capital market
Close dialog with the capital market Investors can find comprehensive information about BASF
and BASF shares on our website and on social media plat-
▪▪ Roadshows for institutional investors and talks with forms.
rating agencies Analysts and investors have confirmed the quality of our
▪▪ BASF Roundtable Asia Pacific communication work: We took first place among European
▪▪ Information events for private investors chemical companies in the annual survey conducted by
Britain’s IR Magazine. Institutional Investor Magazine recog-
Our corporate strategy aims to create long-term value. We nized BASF in such areas as best investor day and best inves-
support this strategy through regular and open communica- tor relations program in the European chemical industry.
tion with all capital market participants. To keep institutional Moreover, the British IR Society honored the integration of
investors and rating agencies informed, we host numerous sustainability reporting into BASF’s corporate communications
one-on-one meetings and roadshows worldwide. We also activities with first place in this international category. BASF
hold informational events to provide private investors with a n won the Building Public Trust Award from auditing firm Price-
insight into BASF. In 2016, around 1,500 private investors took waterhouseCoopers for best integrated corporate report in
the opportunity to attend such events in Germany and Austria. 2015. The award, which was presented in Germany for the
At the end of September 2016, we informed analysts and first time, is intended to recognize companies for their open,
investors at our “Roundtable Asia Pacific” event in London honest and transparent reporting, not just of the classic repor
about our activities in the region as well as the growth potential ting elements but also nonfinancial aspects such as sustain
for the chemical industry. With the aid of concrete measures ability, risk management and corporate governance.
and examples, it was explained how BASF intends to continue For more about BASF stock, see basf.com/share
growing profitably in the Asia Pacific region in the future. Register for the newsletter with current topics and dates at
basf.com/share/newsletter
In 2016, we once again held special events aimed toward
Contact the Investor Relations team by phone at +49 621 60-48230
investors who base their investment decisions on sustainability or email ir@basf.com
criteria. There, we outlined in particular our measures for
climate protection and energy efficiency. In addition, we
offered several special creditor relations roadshows, where
creditors and credit analysts could learn more about our busi-
ness and financing strategy.
16 To Our Shareholders BASF Report 2016
BASF on the capital market
Key BASF share data
2012 2013 2014 2015 2016
Year-end price € 71.15 77.49 69.88 70.72 88.31
Year high € 73.09 78.97 87.36 96.72 88.31
Year low € 51.89 64.79 65.61 65.74 56.70
Year average € 62.17 71.96 77.93 79.28 70.96
Daily trade in shares1
million € 205.6 200.8 224.5 264.5 201.9
million shares 3.3 2.8 2.9 3.3 2.9
Number of shares December 31 million shares 918.5 918.5 918.5 918.5 918.5
Market capitalization December 31 billion € 65.4 71.2 64.2 65.0 81.1
Earnings per share € 5.25 5.22 5.61 4.34 4.42
Adjusted earnings per share € 5.64 5.31 5.44 5.00 4.83
Dividend per share € 2.60 2.70 2.80 2.90 3.00
Dividend yield2 % 3.65 3.48 4.01 4.10 3.40
Payout ratio % 50 52 50 67 68
Price-earnings ratio (P/E ratio)2 13.6 14.8 12.5 16.3 20.0
1
Average, Xetra trading
2
Based on year-end share price
Further information on BASF share
Securities code numbers
Germany BASF11
Great Britain 0083142
Switzerland 11450563
United States (CUSIP Number) 055262505
ISIN International Securities Identification Number DE000BASF111
International ticker symbol
Deutsche Börse BAS
London Stock Exchange BFA
Swiss Exchange BAS
2
To Our Shareholders 5
Management’s Report
Corporate Governance 125
Consolidated Financial Statements 151
Supplementary Information on the Oil & Gas Segment 221
Overviews 231
Management’s Report
The BASF Group 19
Our strategy 22
Corporate strategy 22
Goals 26
Value-based management 28
Sustainability management 29
Innovation 32
Investments, acquisitions and divestitures 37
Business models and customer relations 39
Working at BASF 40
Social commitment 46
The BASF Group business year 47
Economic environment 47
Results of operations 50
Net assets 55
Financial position 56
Business review by segment 59
Chemicals 61
Performance Products 67
Functional Materials & Solutions 74
Agricultural Solutions 80
Oil & Gas 84
Other 89
Regional results 90
Responsibility along the value chain 92
Suppliers 92
Raw materials 94
Environment, health, safety and security 96
Responsible Care Management System 96
Transportation and storage 97
Production 98
Product stewardship 101
Energy and climate protection 103
Water 107
Air and soil 109
Forecast 111
Opportunities and risks report 111
Economic environment in 2017 119
Outlook 2017 122
BASF Report 2016 Management’s Report 19
The BASF Group
The BASF Group
Global leader In 80+ countries Broad portfolio
BASF is the world’s leading Employees contribute to our 5 segments
chemical company success 13 operating divisions
86 strategic business units
At BASF, we create chemistry for a sustainable future. As Our regional units are responsible for optimizing local infra-
the world’s leading chemical company, we combine eco- structure, and contribute to tapping our market potential. For
nomic success with environmental protection and social financial reporting purposes, we organize our regional divisions
responsibility. The approximately 114,000 employees in into four regions: Europe; North America; Asia Pacific; and
the BASF Group work on contributing to the success of South America, Africa, Middle East.
our customers in nearly all sectors and almost every Until the end of 2016, three central divisions, six corporate
country in the world. Our portfolio is arranged into five units and ten competence centers supported the BASF
segments: Chemicals, Performance Products, Functional Group’s business activities in areas such as finance, engineer-
Materials & Solutions, Agricultural Solutions and Oil & ing, investor relations, communications and research. At the
Gas. beginning of 2017, we reassembled these into five research
units, eight functional units and seven corporate units. We
Organization of the BASF Group realigned the o rganizational structures in selected functional
units. These include Procurement, Human Resour ces and
▪▪ Thirteen divisions grouped into five segments Supply Chain Operations & Information Services, along with
▪▪ Regional divisions, corporate units and research and Environmental Protection, Health & Safety and European
functional units support our business Site & Verbund Management. With this organization, we are
aligning ourselves more closely to customer and market needs
Thirteen divisions divided into five segments bear operational and reducing internal interfaces.
responsibility and manage our 57 global and regional business
units. The divisions develop strategies for our 86 strategic
business units and are organized according to sectors or
products.
BASF structure
Percentage of total sales in 2016 6
5
–– Petrochemicals 1
1 Chemicals –– Monomers 23% 4
–– Intermediates
–– Dispersions & Pigments
–– Care Chemicals
2 Performance Products 26%
–– Nutrition & Health
–– Performance Chemicals
–– Catalysts
–– Construction Chemicals
3 Functional Materials & Solutions 33%
–– Coatings
–– Performance Materials
4 Agricultural Solutions –– Crop Protection 10%
3
5 Oil & Gas –– Oil & Gas 5% 2
6 Other 3%
20 Management’s Report BASF Report 2016
The BASF Group
BASF sites
Antwerp
Ludwigshafen
Florham Park
Geismar
Nanjing
Hong Kong
Freeport
Kuantan
São Paulo
Regional centers
Selected sites
Verbund sites
Selected research and development sites
Markets and sites Verbund
▪▪ BASF companies in more than 80 countries ▪▪ Intelligent plant networking in the
▪▪ Six Verbund sites and 352 additional production Production Verbund
sites worldwide ▪▪ Technology and Know-How Verbund
BASF has companies in more than 80 countries and supplies The Verbund system is one of BASF’s great strengths. Here,
products to numerous customers in nearly every part of the we add value as one company by using our resources
world. In 2016, we generated 43% of our sales (excluding efficiently. The Production Verbund intelligently links produc-
Oil & Gas) with customers in Europe. In addition, 26% of sales tion units and energy demand so that, for example, the waste
were generated in North America; 22% in Asia Pacific; and 9% heat of one plant provides energy to others. Furthermore, one
in South America, Africa, Middle East. Viewed over the entire facility’s by-products can serve as feedstock elsewhere. This
BASF Group, 45% of our sales were to customers in Europe, not only saves us raw materials and energy, it also avoids
25% in North America, 21% in Asia Pacific and 9% in South emissions, lowers logistics costs and makes use of synergies.
America, Africa, Middle East. We also make use of the Verbund principle for more than
We operate six Verbund sites and 352 additional produc- production, applying it for technologies, knowledge, employ-
tion sites worldwide. Our Verbund site in Ludwigshafen is the ees, customers, and partners, as well. Expert knowledge is
world’s largest integrated chemical complex. This was where pooled into our global research platforms.
the Verbund principle was originally developed and steadily For more on the Verbund concept, see basf.com/en/verbund
honed before being implemented at additional sites.
BASF Report 2016 Management’s Report 21
The BASF Group
Competitive environment Compensation Report and disclosures in
accordance with Section 315(4) of the German
BASF holds one of the top three market positions in around Commercial Code (HGB)
70% of the business areas in which it is active. Our most
impor tant global competitors include AkzoNobel, Clariant, The Compensation Report can be found in the Corporate
Covestro, Dow Chemical, DSM, DuPont, Evonik, Formosa Governance chapter from page 138 onward, and the disclo-
Plastics, Reliance, SABIC, Sinopec, Solvay and many hun- sures required by takeover law in accordance with Section
dreds of local and regional competitors. We expect competi- 315(4) HGB from page 132 onward. They form part of the
tors from emerging markets to gain increasing significance in Management’s Report audited by the external auditor.
the years ahead.
Declaration of Corporate Governance in
Corporate legal structure accordance with Section 315(5) HGB in
connection with Section 289a HGB
As the publicly traded parent company, BASF SE takes a
central position: Directly or indirectly, it holds the shares in the The Declaration of Corporate Governance can be found in the
companies belonging to the BASF Group, and is also the Corporate Governance chapter from page 125 onward and is
largest operating company. The majority of Group companies a component of the Management’s Report. It comprises:
cover a broad spectrum of our business. In some, we concen- ––Corporate Governance Report (except disclosures pursuant
trate on specific business areas: The Wintershall Group, for to Section 315(4) of HGB)
example, focuses on oil and gas activities. In the BASF Group ––Compliance reporting
Consolidated Financial Statements, 286 companies including ––The Declaration of Conformity pursuant to Section 161 of
BASF SE are fully consolidated. We consolidate eight joint the German Stock Corporation Act
operations on a proportional basis, and account for 34 com-
panies using the equity method. Pursuant to Section 317(2)(4) HGB, information disclosed in
For more information, see the Notes to the Consolidated Financial accordance with Section 315(5) HGB is not included in the
Statements from page 172 onward
audit conducted by the report auditor.
22 Management’s Report BASF Report 2016
Our strategy — Corporate strategy
Our strategy
Corporate strategy
Purpose Principles Values
We create chemistry As strategic basis for our As guideline for our conduct
for a sustainable future success on the market and actions
With the “We create chemistry” strategy, BASF has set Our leading position as an integrated global chemical com
itself ambitious goals in order to strengthen its position as pany gives us the chance to make important contributions in
the world’s leading chemical company. We want to contrib- the following three areas:
ute to a sustainable future and have embedded this into our ––Resources, environment and climate
corporate purpose: “We create chemistry for a sustainable ––Food and nutrition
future.” ––Quality of life
In 2050, nearly ten billion people will live on Earth. While the We therefore act in accordance with four strategic principles.
world’s population and its demands will keep growing, the
planet’s resources are finite. On the one hand, population Our strategic principles
growth is associated with huge global challenges; and yet
we also see many opportunities, especially for the chemical ▪▪ We add value as one company
industry. ▪▪ We innovate to make our customers more successful
▪▪ We drive sustainable solutions
Our corporate purpose ▪▪ We form the best team
▪▪ We create chemistry for a sustainable future We add value as one company. Our Verbund concept is
unique in the industry. Encompassing the Production Verbund,
We want to contribute to a world that provides a viable future Technology Verbund and Know-How Verbund as well as all
with enhanced quality of life for everyone. We do so by creat- relevant customer industries worldwide, this sophisticated and
ing chemistry for our customers and society and by making profitable system will continue to be expanded. This is how we
the best use of available resources. combine our strengths and add value as one company.
We live our corporate purpose by: We innovate to make our customers more successful. We
––Sourcing and producing responsibly want to align our business optimally with our customers’
––Acting as a fair and reliable partner needs and contribute to their success with innovative and
––Connecting creative minds to find the best solution sustainable solutions. Through close partnerships with cus-
for market needs tomers and research institutes, we link expertise in chemistry,
For us, this is what successful business is all about.
World population growth
Europe
707 million
– 3.8%
2010 Europe 2050
735 million
Americas Asia
Asia
1,217 million 5,267 million
Americas
944 million 4,170 million + 29% + 26%
6.9 billion 9.7 billion
Africa
Oceania
1,044 million
36 million
Africa Oceania
2,478 million 57 million
Source: United Nations + 137% + 58%
BASF Report 2016 Management’s Report 23
Our strategy — Corporate strategy
biology, physics, materials science and engineering to jointly Open: We value diversity – in people, opinions and experi
develop customized products, functional materials, and sys- ences. That is why we foster dialog based on honesty, respect
tem solutions as well as processes and technologies. and mutual trust. We develop our talents and capabilities.
We drive sustainable solutions. In the future, sustainability Responsible: We act responsibly as an integral part of soci-
will more than ever serve as a starting point for new business ety. In doing so, we strictly adhere to our compliance stan-
opportunities. That is why sustainability and innovation are dards. And in everything we do, we never compromise on
becoming significant drivers for our profitable growth. safety.
We form the best team. Committed and qualified employees Entrepreneurial: All employees contribute to BASF’s success
around the world are the key to making our contribution to a – as individuals and as a team. We turn market needs into
sustainable future. Because we want to form the best team, customer solutions. We succeed in this because we take
we offer excellent working conditions and inclusive leadership ownership and embrace accountability for our work.
based on mutual trust, respect and dedication to top perfor-
mance. Our focus areas
For more on innovation, see page 32 onward
For more on business opportunities with sustainability, ▪▪ We set ourselves goals along the value chain for our
see page 29 onward
focus areas
For more on the Best Team Strategy, see page 40 onward
We used a materiality analysis to identify and rank relevant
Our values sustainability issues. These topics include, for example, energy
and climate, water, resources and ecosystems, responsible
▪▪ Creative production, and employment and employability.
▪▪ Open Our long-term economic success is dependent on societal
▪▪ Responsible acceptance of our business activities. That is why we have
▪▪ Entrepreneurial formulated clear expectations for our conduct along the value
chain:
Our conduct is critical for the successful implementation of our –– We source responsibly.
strategy: This is what our values represent. They guide how ––We produce safely for people and the environment.
we interact with society, our partners and with each other. ––We produce efficiently.
––We respect people and treat them fairly.
Creative: In order to find innovative and sustainable solutions, ––We drive sustainable solutions.
we have the courage to pursue bold ideas. We link our areas
For more on our materiality analysis, see basf.com/materiality
of expertise from many different fields and build partnerships For more on our goals, see page 26 onward
to develop creative, value-adding solutions. We constantly
improve our products, services and solutions.
24 Management’s Report BASF Report 2016
Our strategy — Corporate strategy
The BASF brand Global standards
▪▪ Above-average awareness of, and trust in, ▪▪ We act according to clearly defined values and
BASF brand in chemical industry standards of conduct that comply with or go beyond
laws and regulations
We rely on a strong brand in order to further expand our posi- ▪▪ We review our performance with regular audits
tion as the world’s leading chemical company. Our brand is
derived from our strategy and our corporate purpose – “We Our standards fulfill or exceed existing laws and regulations
create chemistry for a sustainable future” – as well as our and take internationally recognized principles into account. We
strategic principles and values. respect and promote:
“Connected” describes the essence of the BASF brand. ––The ten principles of the U.N. Global Compact
Connectivity is one of BASF’s great strengths. Our Verbund ––The Universal Declaration of Human Rights and the two
concept – realized in production, technologies, knowledge, U.N. Human Rights Covenants
employees, customers and partners – enables innovative ––The core labor standards of the ILO and the Tripartite
solutions for a sustainable future. The claim that “We create Declaration of Principles Concerning Multinational
chemistry,” as stated in the BASF logo, helps us embed this Enterprises and Social Policy (MNE Declaration)
solution-oriented strategy in the public consciousness. Our ––The OECD Guidelines for Multinational Enterprises
brand creates value by helping communicate its benefits for ––The Responsible Care Global Charter
our stakeholders as well as our values. ––The German Corporate Governance Code
Wherever our stakeholders encounter our brand, we want
to convince them that BASF stands for connectivity, intelligent We stipulate rules for our employees with standards that apply
solutions, value-adding partnerships, an attractive working throughout the Group. We set ourselves ambitious goals with
environment and sustainability. This contributes to our custom- voluntary commitments and monitor our performance in terms
ers’ confidence in their buying decisions and to our company of the environment, health and safety using our Responsible
value. Care Management System. In terms of labor and social
We are constantly developing our brand image. We regu- standards, this takes place using three elements: the Compli-
larly measure awareness of and trust in our brand, and there- ance Program (including the external compliance hotlines),
fore in our company. A global market research study con- close dialog with our stakeholders (such as with employee
ducted every two years showed in 2016 that, in terms of representatives or international organizations), and the global
awareness and trust, BASF is above the industry average in management process for the respect of international labor
numerous countries. The study collected data on respon- norms.
dents’ aided awareness of BASF and our most important Our business partners are expected to comply with pre-
competitors. Our goal is to continue increasing awareness of vailing laws and regulations and to align their actions with
BASF in all of our relevant markets. internationally recognized principles. We have established
monitoring systems to ensure this.
For more on labor and social standards, see page 45
For more on the Responsible Care Management System, see page 96
For more on Corporate Governance, see page 125 onward
For more on Compliance, see page 134 onward
BASF Report 2016 Management’s Report 25
Our strategy — Corporate strategy
Innovations for a sustainable future Business expansion in emerging markets
Innovations in chemistry are needed to meet the needs of the In the years ahead, we want to grow even more vigorously in
growing world population on a long-term basis. The develop- the emerging markets and further expand our position there.
ment of innovative products and solutions is, therefore, of vital Today’s emerging markets are expected to account for around
significance for BASF. In the long term, we aim to continue 60% of global chemical production in 2020. We aim to benefit
significantly increasing sales and earnings with new and from the above-average growth in these regions and therefore
improved products. Effective and efficient research is therefore plan to invest more than a quarter of our capital expenditures1
indispensable. there between 2017 and 2021.
We drive intensive research and development activities in Growth in the emerging markets remained overall stable in
our established business areas. One focus of our research is 2016 as compared with the previous year. In China, govern-
on the enhancement and innovative application of specific key ment support measures kept growth from slowing down as
technologies. They pool the diverse competencies of our inter- much as we had expected. The other emerging markets of
national Research and Development Verbund to strengthen Asia were able to largely retain their growth dynamic. Gross
our competitive ability in the long-term. We also work on domestic product continued to drop in South America. Brazil
specific growth fields in order to develop future business found itself in a severe recession, while gross domestic prod-
fields for BASF. With our research, we aim to make a decisive uct decreased slightly in Argentina, as well. Economic perfor-
contribution to innovative solutions for global challenges and mance in Russia shrank only marginally after sharp declines in
contribute to sustainable development. the previous year; a contributing factor was the stabilization of
Our three global technology platforms are each based in oil prices. Overall, the emerging markets of eastern Europe
one of the regions particularly significant for us: Process were able to post slight growth once again.
Research & Chemical Engineering (Ludwigshafen, Germany), Compared with 2015, sales (excluding Oil & Gas) at our
Advanced Materials & Systems Research (Shanghai, China) companies headquartered in the emerging markets declined
and Bioscience Research (Research Triangle Park, North by 3% to €14,849 million. Increased sales volumes could only
Carolina). We want to continue expanding our research and partly compensate for negative currency and price effects.
development activities on a global level, and are also adapting Measured by customer location, sales (excluding Oil & Gas) in
this to the growth in regional markets. The stronger global the emerging markets fell by 4% to €18,742 million. This
presence of our research and development opens up new brought sales to customers in emerging markets to around
opportunities to actively participate in worldwide innovation 34% of total sales (excluding Oil & Gas) in 2016. In the years
processes and gain access to talent. ahead, we want to continue expanding this percentage.
For more on innovation, see page 32 onward For more on our goals, see page 26 onward
For more on current developments, see the Regional Results on page 91
Sales2 in emerging markets
2016 34% 66%
ird aktualis iert
2006 w
27% 73%
Emerging markets Schwellenländer Industrieländer
Industrialized countries3 3
2
Percentage of BASF Group sales (excluding Oil & Gas) by location of customer
3
Comprises EU15, Norway, Switzerland, United States, Canada, Japan, South Korea,
Australia, New Zealand
1
Excluding additions to property, plant and equipment resulting from acquisitions, capitalized exploration, restoration obligations and IT investments
26 Management’s Report BASF Report 2016
Our strategy — Goals
Goals
We carry out our corporate purpose, “We create chemistry for growth and take on social and environmental responsibility. We
a sustainable future,” by pursuing ambitious goals along our are focusing on issues through which we as a company can
entire value chain. In this way, we aim to achieve profitable make a significant contribution.
Goal areas along the value chain
Suppliers BASF Customers
Growth and profitability; Employees;
Procurement Production; Product stewardship; Products and solutions
Energy and climate protection; Water
Procurement
2020 Goal Status at end of 2016 More on
Assessment of sustainability performance of relevant suppliers1 according to our
risk-based approach; development of action plans where improvement is necessary 70% 32% Page 92
1
We define relevant suppliers as those showing an elevated sustainability risk potential as identified by risk matrices and with respect to corresponding country risks. Our suppliers are
evaluated based on risk due to the size and scale of our supplier portfolio.
Growth and profitability
As determined in 2015, our aim for the years ahead is, on Change since
average, to grow sales slightly faster and EBITDA considerably 2016 2015
faster than global chemical production (excluding pharma Sales €57.6 billion (4.6%)2
ceuticals; 2016: 3.4%), and to earn a significant premium on EBITDA €10.5 billion 5.3%2
our cost of capital. Moreover, we strive for a high level of free Dividends per share paid out €2.90 €0.10
cash flow each year, either raising or at least maintaining the
dividend at the prior-year level. The goals for sales and EBITDA Premium on cost of capital €1.1 billion
are based on the 2015 figures, excluding contributions from Free cash flow €3.6 billion
the business disposed of in the asset swap with Gazprom in 2
Baseline 2015: excluding business transferred to Gazprom
September 2015.
For more on our Results of Operations, see pages 50 to 54
Employees
2021 Goal Status at end of 2016 More on
Proportion of women in leadership positions
with disciplinary responsibility 22–24% 19.8% Page 43
Long-term goals
International representation among senior Increase in proportion of non-German senior executives
executives3 (baseline 2003: 30%) 36.4% Page 43
Senior executives with international Proportion of senior executives with international experience over
experience 80% 84.6% Page 43
Employee development Systematic, global employee development as shared responsibility The project has been
of employees and leaders based on relevant processes and tools implemented for around
78,150 employees
worldwide. Page 42
3
The term “senior executives” refers to leadership levels 1 to 4, whereby level 1 denotes the Board of Executive Directors. In addition, individual employees can attain senior executive
status by virtue of special expertise.
BASF Report 2016 Management’s Report 27
Our strategy — Goals
Production
2025 Goals Status at end of 2016 More on
Reduction of worldwide lost-time injury rate
per one million working hours ≤0.5 1.4 Page 98
Reduction of worldwide process safety incidents
per one million working hours ≤0.5 2.0 Page 99
Annual goal
Health Performance Index >0.9 0.96 Page 99
Product stewardship
2020 Goal Status at end of 2016 More on
Risk assessment of products that we sell in quantities of more than
one metric ton per year worldwide >99% 75.4% Page 101
Energy and climate protection
2020 Goals Status at end of 2016 More on
Coverage of our primary energy demand by introducing certified
energy management systems (ISO 50001) at all relevant sites4 90% 42.3% Page 104
Reduction of greenhouse gas emissions per metric ton of sales
product (excluding Oil & Gas, baseline 2002) (40%) (37.2%) Page 104
4
The selection of relevant sites is determined by the amount of primary energy used and local energy prices.
Water
2025 Goal Status at end of 2016 More on
Introduction of sustainable water management at all production sites
in water stress areas and at all Verbund sites (excluding Oil & Gas) 100% 42.6% Page 107
Products and solutions
2020 Goal Status at end of 2016 More on
Increase the proportion of sales generated by products that make a
particular contribution to sustainable development (“Accelerators”) 28% 27.2% Page 30
28 Management’s Report BASF Report 2016
Our strategy — Value-based management
Value-based management
“We add value as one company” is one of the four princi- Value-based management throughout the
ples of our “We create chemistry” strategy. To create company
value in the long term, a company’s earnings must exceed
the cost of stockholders’ equity and borrowing costs. This ▪▪ Exercising a value-oriented mindset in day-to-day
is why we strive to earn a significant premium on our business by every employee
cost of capital. To ensure BASF’s long-term success, we
encourage and support all employees in thinking and For us, value-based management means the daily focus
acting entrepreneurially in line with our value-based placed on value by all of our employees. To this end, we have
management concept. Our goal: to create awareness as identified value drivers that show how each and every unit in
to how each and every employee can find value-oriented the company can create value. We develop performance indi-
solutions in the company’s day-to-day operations and cators for the individual value drivers that help us to plan and
implement these in an effective and efficient manner. pursue changes.
An important factor in ensuring the successful implemen-
EBIT after cost of capital tation of value-based management is linking the goals of BASF
to the individual target agreements of employees. In the
▪▪ Performance and management indicator operating units, the most important performance indicator is
EBIT after cost of capital. By contrast, the functional units’
Income from operations (EBIT) after cost of capital is a key contribution to value is assessed on the basis of effectiveness
performance and management indicator for the BASF Group, and efficiency.
its operating divisions and business units. This figure combines All this forms a consistent system of value drivers and key
the company’s economic situation as summarized in EBIT with indicators for the individual levels and functions at BASF. In
the costs for the capital made available to us by shareholders addition to EBIT after cost of capital, EBIT and EBIT before
and creditors. When EBIT exceeds cost of capital, we earn special items are the most significant performance indicators
a premium on our cost of capital and exceed the return for measuring economic success as well as for steering the
expected by our shareholders. BASF Group and its operating units.
We primarily comment on EBIT before special items on a
Calculating EBIT after cost of capital segment and division level in our financial reporting. Special
items arise from the integration of acquired businesses,
▪▪ Cost of capital determined using cost of capital restructuring measures, impairments, gains or losses resulting
percentage and cost of capital basis from divestitures and sales of shareholdings, and other expen
ses and income that arise outside of ordinary business activi-
To calculate EBIT after cost of capital, we take the BASF ties. Adjusting for special items makes EBIT before special
Group’s EBIT and deduct the EBIT of activities recognized items an especially suitable figure for illustrating development
under Other – not allocated to the segments – and subtract over time. In addition to EBIT before special items, we also
the cost of capital of the BASF Group from the resulting figure. report on sales as a further main driver for EBIT after cost of
Cost of capital is determined by applying cost of capital capital. BASF’s nonfinancial targets are focused more on the
before taxes to the value of the cost of capital basis at each long term, and are not used for short-term steering.
month end. Monthly cost of capital is then added up over the According to our value-based management concept, all
course of the year. employees can make a contribution in their business area to
The cost of capital percentage (weighted average cost help ensure that we earn the targeted premium on our cost of
of capital, WACC) is determined using the weighted cost of capital. We pass this value-based management concept on to
capital from equity and borrowing costs. The cost of equity is our team around the world through seminars and training
ascertained using the Capital Asset Pricing Model. Borrowing events, thereby promoting entrepreneurial thinking at all levels
costs are determined based on the financing costs of the within BASF.
BASF Group. EBIT after cost of capital, which we use as a For more on the development of the figures outlined in
Results of Operations, see page 50 onward
steering parameter, is a pretax figure. Therefore, we use the
current average tax rate to derive the pretax cost of capital
percentage from the WACC. The projected net expense of
Other is already provided for by an adjustment in the cost of
capital percentage.
The cost of capital basis consists of a segment’s oper
ating assets plus the customer and supplier financing not
included there. Operating assets comprise the current and
noncurrent asset items1 used by the operating divisions.
1
These include fixed assets, intangible assets, investments accounted for using the equity method, inventories, trade accounts receivable, other receivables generated by core business
activities, and other assets as well as any assets of disposal groups.
BASF Report 2016 Management’s Report 29
Our strategy — Sustainability management
Sustainability management
Sustainability is an integral part of our corporate strategy. They provide strategic orientation for BASF’s commitments in
Using the various tools of our sustainability management, meeting the growing challenges along the value chain:
we carry out our company purpose: “We create chemistry ––We source responsibly.
for a sustainable future.” Sustainability is integrated into ––We produce safely for people and the environment.
our core business, in line with our strategic principle “We ––We produce efficiently.
drive sustainable solutions.” This is how we seize business ––We respect people and treat them fairly.
opportunities and minimize risks along the value chain. ––We drive sustainable solutions.
Strategy Relevant topics resulting from these commitments form the
focal points of our reporting, which we integrate into our long-
▪▪ Recognizing significant topics and trends term steering processes.
▪▪ Taking advantage of business opportunities We take advantage of business opportunities by offering
▪▪ Minimizing risks our customers innovative products and solutions that contrib-
ute to sustainable development. We ensure that sustainability
As the world’s leading chemical company, we aim to add value criteria are integrated into our business units’ development
in the long term for our company, the environment, and soci- and implementation of strategies, research projects, and inno-
ety. Sustainability is a driver for growth as well as an element vation processes. For example, we analyze sustainability-
of our risk management. That is why we incorporate aspects related market trends in customer industries, such as the
of sustainability into our decision-making processes and have packaging industry, in order to zero in on taking advantage of
defined clear responsibilities in our organization. new business opportunities.
We have created structures to promote sustainable, entre- Our risk management supports our long-term business
preneurial actions all the way from strategy to implementation. success. We aim to reduce potential risks in the areas of envi-
The Corporate Sustainability Board is BASF’s central steering ronment, safety and security, health protection, product
committee for sustainable development. It is comprised of the stewardship, compliance, and labor and social standards by
heads of our business, corporate and functional units as well setting ourselves globally uniform requirements that frequently
as of the regions. A member of the Board of Executive Direc- go beyond legal requirements. Internal monitoring systems
tors serves as chair. We have also established an external, and complaint mechanisms enable us to check compliance
independent Stakeholder Advisory Council. Here, international with these standards: they include, for example, question-
experts from science and society contribute important external naires, audits and compliance hotlines. All employees, manag-
perspectives to discussions with BASF’s Board of Executive ers, and Board members are required to abide by our global
Directors, thereby helping us expand our strengths and identify Code of Conduct, which defines a mandatory framework for
our potential for improvement. our business activities.
Through our materiality analysis, constant dialog with Our investment decisions for property, plant and equip-
stakeholders, and our many years of experience, we are con- ment and financial assets also involve sustainability criteria.
tinuously developing a better understanding of significant Our decision-making is supported by expert appraisals that
topics and trends as well as potential opportunities and risks assess economic implications as well as potential effects on
along our value chain. the environment, human rights or local communities.
We were already using a materiality analysis back in 2013 For more on the organization of our sustainability management, see
basf.com/sustainabilitymanagement
to identify such topics as energy and climate, water, resources
For more on our materiality analysis, see basf.com/materiality
and ecosystems, responsible production, and employment
For more on our financial and sustainability goals, see page 26 onward
and employability. A strategic evaluation process built upon
For more on our production standards, see page 98 onward
this in 2015 and 2016 to define new focus topics along the For more on standards in our supply chain, see page 92 onward
value chain. For more on Compliance and our Code of Conduct,
see page 134 onward
30 Management’s Report BASF Report 2016
Our strategy — Sustainability management
Engaging stakeholders Corporation have made use of their right to establish a Political
Action Committee (PAC). The BASF Corporation Employee
▪▪ Constant dialog with our stakeholders PAC is a voluntary, federally registered employee association
founded in 1998. It collects donations for political purposes
Our stakeholders include customers, employees, suppliers and independently decides how these are used, in accordance
and shareholders, as well as representatives from science, with U.S. law.
industry, politics, society and media. Parts of our business For more on stakeholder dialog, see basf.com/en/dialog
activities, such as the use of new technologies, are frequently For more on the Stakeholder Advisory Council, see
basf.com/en/stakeholder-advisory-council
viewed by our stakeholders with a critical eye. In order to
For more on our guidelines for responsible lobbying, see
increase societal acceptance for our business activities, we basf.com/guidelines_political_communication
take on critical questions, assess our business activities in For more on our human rights position, see
terms of their sustainability, and communicate transparently. basf.com/humanrights and pages 45 and 134
For more on sustainability in procurement, see page 92 onward
Such dialogs help us to even better understand society’s
expectations of us and which measures we need to pursue in
order to establish trust and build partnerships. Creating value
To involve our stakeholders even more closely, members
of the Board of Executive Directors once again met with the ▪▪ Value to Society: method for assessing economic,
Stakeholder Advisory Council in 2016 to discuss important environmental and social impact of business activities
aspects of sustainability. Topics include further integrating along the value chain
sustainability into our company, as well as our new “Value to ▪▪ Evaluating sustainability performance to steer product
Society” approach. This involves evaluating the societal bene- portfolio
fits and costs generated by BASF’s business activities.
We have a particular responsibility toward our production We want to measure the value proposition of our actions along
sites’ neighbors. With the established community advisory the entire value chain, aware that our business activities are
panels, we aim to promote open exchange between citizens connected to both positive and negative impacts on the envi-
and our site management, and strengthen trust in our ronment and society. We strive to increase our positive contri-
activities. In 2016, we developed new, globally applicable bution to society and minimize the negative effects of our
require ments for community advisory panels at our sites. business activities.
These minimum requirements are oriented toward the griev- In order to achieve this, we need to understand better than
ance mechanisms outlined in the U.N. Guiding Principles ever how our actions impact society and the environment. We
for Business and Human Rights. We keep track of their imple- already have many years of experience evaluating our prod-
mentation through the e xisting global databank of the ucts and processes using such methods as eco-efficiency
Responsible Care Management System. analyses, the Sustainable Solution Steering® portfolio analysis,
BASF is involved in worldwide initiatives with various or BASF’s corporate carbon footprint.
stakeholder groups, such as the U.N. Global Compact. BASF’s Building on this, BASF has been developing a new method
Chairman of the Board of Executive Directors is a member of with external experts since 2014 to perform the first monetary
the United Nations Global Compact Board. As a member of assessment of the economic, ecological, and social impacts
the U.N. Global Compact LEAD initiative, we support the of its business activities along the value chain: the “Value to
implementation of the “Agenda 2030” and its Sustainable
Society” approach. It enables a direct comparison between
Development Goals. BASF is also active in local Global Com- financial and nonfinancial effects on society, along with how
pact networks. these interact.
We are part of the Global Business Initiative on H uman This transparency supports the integrated character of our
Rights (GBI). This group of globally operating companies from actions, contributing to BASF’s long-term success. The results
various branches aims to ensure implementation of the U.N. of these assessments are helpful in our discussions with
Guiding Principles on Business and Human Rights. With inter- stake holders, in internal progress measurements, and in
national experts at the GBI conference in South Africa, we decision-making processes.
discussed how we can support a mining company and BASF We contribute our approach and expertise to current
supplier in fulfilling its responsibilities with respect to human debates on the monetary value of the economic, environmen-
rights. tal and social impact of business decisions. We share our
Our lobbying and political communications are conducted experience in networks and are involved in the corresponding
in accordance with transparent guidelines and in keeping with standardization processes within the International Organiza-
our publicly stated positions. BASF does not financially sup- tion for Standardization (ISO).
port political parties. In the United States, employees at BASF
BASF Report 2016 Management’s Report 31
Our strategy — Sustainability management
Sustainable Solution Steering ®: How BASF’s products contribute to sustainability
27.2% Accel
era
to Substantial sustainability contribution
r in the value chain
Pe
rfo
rmer Meets basic sustainability standards
Sustainable on the market
Solution
Transit
68.3% Steering® Specific sustainability issues which are being
actively addressed
ion
er
Ch
all
eng
ed Significant sustainability concern identified
and action plan in development
4.2% 0.3%
A significant lever for the targeted steering of our product contains a liquid hydrocarbon mixture. This hydrocarbon mix-
portfolio, based on the sustainability performance of our prod- ture contains naphthalene, which categorizes it as a CMR
ucts, is the Sustainable Solution Steering® method. By the end (carcinogenic, mutagenic or toxic for reproduction) substance.
of the 2016 business year, BASF had conducted sustainability In order to address some of our customers’ occupational
assessments and ratings for 95.9% of its entire relevant port- safety concerns, a research project was begun and a solution
folio of more than 60,000 specific product applications – which developed. Customers can now o btain the alternative
account for €53.2 billion in sales. We consider the products’ Keropur® 3708, free of CMR substances.
application in various markets and industries. Because of For all products classified as “Challenged,” we aim to
increasing sustainability requirements on the market, we
develop prompt plans of action, even in the case of portfolio
regularly conduct reassessments of existing product catego- revisions and product reassessments. These action plans can
ries as well as of the relevant portfolio. include research projects, reformulations or even replacing
“Accelerator” products make a particular contribution to one product with an alternative product. At the end of
sustainability in the value chain. That is why we want to 2016, action plans had been created for 100% of Challenged
increase the proportion of sales from Accelerator products products.
to 28% by 2020. In 2016, this figure was at 27.2%. We furthermore promoted sustainability topics in 2016
through various joint projects with partners along the value
chain. One such project involved supporting the agricultural
2020 Goal
trading company AGRAVIS Raiffeisen AG, based in Münster/
Increase proportion of sales gener-
ated by Accelerator products
to 28% Hannover, in conducting calculations for the manufacture of
sustainable feed mixes. BASF developed an online calculation
program that compares various feed mixes for pigs using
One of our Accelerator products for the agricultural sector is sustainability criteria along the entire value chain. The under
Limus®, an additive for urea-based fertilizers. Using purely lying eco-efficiency analysis measures various parameters like
urea-based fertilizers means the loss of a large portion of nitro- emissions to water, land use, CO2 emissions and costs. Cus-
gen – one of the most important crop nutrients – through the tomers can use this information to figure out how to reduce
activity of the urease enzyme. Adding Limus® inhibits this their products’ environmental impact while keeping an eye on
enzyme and ensures a constant supply of nitrogen. At the costs. For example, a comparison between conventional and
same time, less ammonia is released into the atmosphere. optimized feed mixes showed how impact on the environment
Ammonia contributes to smog, as well as to overfertilization can be significantly reduced while production costs remain
and alternation of the ecosystem. Limus® thus leads to more nearly unchanged. Major factors here included minimizing
consistent harvest yields while protecting the environment. water and land use. With new combinable feed mixes contain-
“Transitioners” are products with specific sustainability ing grain by-products and other ingredients, reductions can be
challenges that are being actively tackled. Due to the adjust- attained in the use of arable land for producing feed for hogs.
ment of the portfolio under evaluation, the number of these For more on Value to Society (methodology and results), see
basf.com/en/value-to-society
products rose in 2016. A fuel additive from our Keropur® line is
For more on Sustainable Solution Steering®, see
one example of how we enhance the sustainability perfor- basf.com/en/sustainable-solution-steering
mance of our products. Such innovative fuel additives increase For more on our sustainability instruments, see
the efficiency of combustion engines. The result is reduced basf.com/en/measurement-methods and page 94
fuel consumption, and therefore fewer pollutant emissions.
Keropur® 3638 is categorized as a Transitioner because it
32 Management’s Report BASF Report 2016
Innovation
Innovation
Around 10,000 €1,863 million Around 3,000
Employees in research and Spent on research Projects in research pipeline
development worldwide and development
A growing need for food, clean water and energy, limited disciplines. The direct access to external scientific expertise,
resources and a booming world population – reconciling new technologies and talented minds from various disciplines
all these factors is the greatest challenge of our time. strengthens our portfolio with creative new projects.
Innovations based on chemistry play a key role here, as In our excellence program “UNIQUE – The BASF Academic
they contribute decisively to new solutions. Effective and Partnership Program,” we are working intensively with fifteen
efficient research and development are a prerequisite for leading universities around the world. BASF also runs four
innovations as well as an important growth engine for postdoc centers that pool collaborations with several research
BASF. We work in interdisciplinary teams on innovative groups on a regional level. The North American Center for
processes and products for a sustainable future. This Research on Advanced Materials (NORA) and the California
is how we ensure our long-term business success Research Alliance (CARA) are located in North America. The
with chemistry-based solutions for almost all sectors of Joint Research Network on Advanced Materials and Systems
industry. (JONAS) is active in Europe, while the Network for Advanced
Materials Open Research (NAO) covers the Asia Pacific region.
For BASF, innovation is the key to successfully standing out In order to continuously promote exchange with external
from the crowd in a challenging market environment. Our inno- customers and partners, we have integrated the Creator
vative strength is based on our global team of highly qualified Space® approach from our 2015 anniversary year into our
employees with various specializations. We had around regular research activities. We use this program to develop
10,000 employees involved in research and development in innovative ideas.
2016. Our three global technology platforms are each run from
one of the regions particularly significant for us – Europe, Asia Strategic focus
Pacific and North America: Process Research & Chemical
Engineering (Ludwigshafen, Germany), Advanced Materials & ▪▪ Enhanced innovation approach with strong focus
Systems Research (Shanghai, China) and Bioscience on customers and markets
Research (Research Triangle Park, North Carolina). Together ▪▪ Increased use of digital technologies
with the development units in our operating divisions, they ▪▪ Globalizing research and strengthening regional
form the core of our global Know-How Verbund. BASF New competencies
Business GmbH and BASF Venture Capital GmbH supplement
this network with the task of using new technologies to tap Our research pipeline comprised approximately 3,000 proj-
into attractive markets and new business models for BASF. ects in 2016. Expenses for research and development
In 2016, we generated sales of over €10 billion with prod- amounted to around €1,863 million, slightly below the prior
ucts launched on the market since 2011 that stemmed from year’s level (€1,953 million). This was particularly attributable to
research and development activities. In the long term, we aim the rearrangement of research activities in plant biotechnology
to continue significantly increasing sales and earnings with and the corresponding adjustment of site structure in North
new and improved products. America and Europe. Operating divisions were responsible for
79% of total research and development expenses in 2016.
Global network The remaining 21% was allocated to cross-divisional corpo-
rate research focusing on long-term topics of strategic impor-
▪▪ Network with around 600 universities, tance to the BASF Group. We strive to maintain the recent
research institutes and companies years’ high level of spending on research and development.
Innovations based on chemistry require market-oriented
Our global network of about 600 universities, research insti- research and development focused on the needs of our
tutes and companies forms an important part of our Know- customers. That is why our cross-divisional corporate research
How Verbund. We collaborate with them in many different is closely aligned with the requirements of our operating
BASF Report 2016 Management’s Report 33
Innovation
divisions. In order to bring promising ideas to market as quickly When they mature, we transfer them to the operating divisions
as possible, we regularly assess our research projects using a and promote the development of new approaches with high
multistep process and focus our topics accordingly. Creativity, market potential. In addition, we have set a course for system-
efficiency and collaboration with external partners are among atically using digital technologies in research and development.
the most important success factors. In the years ahead, existing expertise in fields like modeling
We enhanced our innovation approach in 2016 with the and simulation will be consistently expanded and new digital
aim of increasing our company’s power of innovation and work areas will be developed.
securing long-term competitive ability. We aim to achieve this After rearranging our research activities in plant biotech-
by honing our research focus on topics that are strategically nology, we undertook further organizational adjustments to
relevant for our business, strengthening our existing scientific our global R+D structures at the end of 2016. Research activi
processes and methods and introducing new ones, and opti- ties in Singapore were discontinued toward the end of the year
mizing organizational structures. due to market developments. We are pursuing the research
In so doing, we restructured cross-divisional corporate topics located there at other sites. Research and development
research in 2016 to create more space for the quick review of activities at the European research sites in Basel and Düssel-
creative research approaches. At the same time, we tailored dorf were restructured in order to be able to support the oper-
our previous technology fields even more toward the needs of ating divisions there more effectively.
the BASF Group. They have been rearranged into multiple, Our global research and development presence is vital
strategic key technologies that are constantly being further to our success. In 2015, we had completed the expansion of
developed. We also place our focus on the innovative applica- the Innovation Campus Asia Pacific in Shanghai, China. A
tion of specific key technologies that are of central significance second Innovation Campus Asia Pacific is now being set up in
for our operating divisions. Examples include polymer technol- Mumbai, India, in order to continue strengthening our regional
ogies, catalyst processes and strategies for the development research capacities. There, the focus areas in research will be
of biodegradable and bio-based materials. on crop protection and method development.
In order to develop future business fields with high sales
potential for BASF, we develop specific growth fields. These
are regularly reviewed in terms of their attractiveness for BASF.
Global network: postdoc centers
CARA NORA JONAS NAO
California Research Alliance North American Center for Research Joint Research Network on Network for Advanced Materials
on Advanced Materials Advanced Materials and Systems Open Research
University of California Harvard University I.S.I.S – Université de Strasbourg Changchun Institute of Applied Chemistry
Berkeley, California Cambridge, Massachusetts Strasbourg, France Changchun, China
University of California Massachusetts Institute of Technology University of Freiburg Tsinghua University
San Francisco, California Cambridge, Massachusetts Freiburg, Germany Tsinghua, China
Stanford University University of Massachusetts ETH Zurich Beijing Institute of Technology
Stanford, California Amherst, Massachusetts Zurich, Switzerland Beijing, China
University of California Beijing University of Chemical Technology
Los Angeles, California Beijing, China
Fudan University
Fudan, China
Hanyang University
Hanyang, South Korea
Kyoto University
Kyoto, Japan
34 Management’s Report BASF Report 2016
Innovation
We want to continue advancing our research and develop- As the market leader in chemicals, BASF holds a special
ment activities in Asia especially, as well as in North America, respon sibility toward people and the environment. Accor
and are adapting this to the growth in regional markets. This dingly, new products undergo comprehensive environmental
increased presence outside Europe creates new opportunities and toxicological testing before being brought to market.
for fortifying and expanding customer relations and scientific These tasks are appointed to the Bioscience Research tech-
collaborations and for gaining access to talented employees. nology platform and include the search for new methods to
The result will be to strengthen our Research and Develop- reduce, improve or replace the animal testing required by law.
ment Verbund and make BASF an even more attractive partner We are the global forerunner in the chemical industry in devel-
and employer, both on a global level and in the regions. oping such alternative methods. In May 2016, LuSens, an
Ludwigshafen remains the largest site in our Research alternative method developed by BASF, was validated by the
Verbund. In the nearby BASF agricultural center of Limburger- European Union. LuSens is one component of a three-part
hof – headquarters of the Crop Protection division – a new testing strategy that enables reliable screening for allergic skin
research and development center for biological crop protec- reactions on contact with chemicals.
tion and seed solutions was opened in April 2016. 3-D printing involves the development of innovative mate-
The number and quality of our patents also attest to our rials. Compared with injection molding, 3-D printing offers
power of innovation and long-term competitiveness. We filed advantages such as lower costs in small-series production,
around 850 new patents worldwide in 2016. For the eighth more time efficiency, and the realization of complex structural
time in succession, we headed the rankings in the Patent elements in a single manufacturing process. In the chemical
Asset Index in 2016 – a method which compares patent port- industry, BASF has a broad material portfolio for 3-D printing
folios industry-wide. at its disposal. BASF New Business GmbH is constructing a
For a multiyear overview of research and development expenditures, development center in Heidelberg, Germany, to develop
see the Ten-Year Summary on page 233
improved materials and optimize the interplay between mate-
rials and 3-D printers, together with partners like printer manu
Research focus areas – examples facturer Farsoon Technologies. Furthermore, our Advanced
Materials & Systems Research technology platform is active in
▪▪ Innovations based in chemistry to answer important this field at the sites in Ludwigshafen, Germany; Basel, Swit-
questions of the future zerland; Wyandotte, Michigan; and Shanghai, China. One
attest to BASF’s competencies in material development is
Our focus areas in research are derived from the three major Ultrasint PA6 X028, launched in April 2016. This powder,
areas in which chemistry-based innovations will play a key role based on polyamide 6, is geared toward use in the laser sin-
in the future: resources, environment and climate; food and tering technique widely used in 3-D printing. Compared with
nutrition; and quality of life. conventional polyamides, it provides superior mechanical sta-
The field of efficient energy systems reveals high innovation bility and higher heat resistance. Furthermore, BASF
and market potential. In this context, BASF is working on such announced its intention in November 2016 to expand its co-
topics as the development of high-temperature supercon- operation with American printer manufacturer HP in order to
ductors based on yttrium barium copper oxide, which trans- move forward with the development of new 3-D print materials.
mits electricity at low temperatures with negligible loss and In the E.U.-supported PRODIAS1 project, researchers and
enables savings potential in generating and transporting developers of our Process Research & Chemical Engineering
power. Its current-carrying capacity is twenty times greater technology platform are working together with partners from
than that of copper, the most commonly used material in industry and academia on methods and processes that allow
electrical lines. Two milestones have been achieved on the products based on renewable raw materials to be produced
path toward a market launch: BASF and the global energy efficiently and with fewer resources, while simultaneously
company American Superconductor Corp. (AMSC) announced increasing the competitiveness of these products. The bio-
a licensing agreement and research cooperation together technological processes used, like fermentation, mostly take
in March 2016. Furthermore, Deutsche Nanoschicht GmbH, place in diluted aqueous systems that demand energy-
a 100% subsidiary of BASF New Business GmbH, started intensive steps for separation and purification. Through the
up a pilot plant for manufacturing high-temperature super use of freeze concentration – a technique typical in the food
conductors in May 2016. industry – we managed to concentrate biotechnologically
produced products in an especially gentle manner with negli-
gible losses for the first time in 2016.
For more on research and development, see basf.com/innovations
1
PRODIAS stands for Processing Diluted Aqueous Systems.
BASF Report 2016 Management’s Report 35
Innovation
Innovations in the segments – examples Lavergy® Pro 104 L is a newly developed protease – or pro-
tein-splitting enzyme. Liquid detergents formulated with this
enzyme are already powerfully effective at low washing tem-
Research and development expenses by segment peratures, removing certain tough stains considerably better
1 than the established market standards. Lavergy® Pro 104 L is
1 Chemicals 10% 6
even more powerful when combined with our high-perfor-
2 Performance Products 20%
2 mance detergent polymer Sokalan® HP 20. Expertise in both
3 Functional Materials & Solutions 21% 5
€1,863 million biology and chemistry allows us to offer customers even more
4 Agricultural Solutions 26%
opportunities to precisely customize liquid detergent formula-
5 Oil & Gas 2%
4
tions.
6 Corporate research, Other 21% 3 Farmers require high-quality feed for their animals. Yet
preserved feed, typically in the form of silage, and water are
Chemicals: In 2016, we established the Amsterdam-based both susceptible to pathogenic microorganisms. Adding our
Synvina C.V. joint venture with Avantium to produce and mar- Lupro-Mix® NA organic acid mixture inhibits the growth of
ket furandicarboxylic acid (FDCA) from renewable resour- harmful bacteria and mold, allowing livestock to receive silage
ces on an industrial scale. The most significant use of FDCS is and water of the highest quality. Farmers also benefit from the
the production of polyethylenefuranoate (PEF), a new polymer fact that Lupro-Mix® NA is easier and safer to use than com-
used for applications such as food and beverage packaging. parable products, while remaining nevertheless economical.
Compared with conventional plastics, PEF demonstrates Plastic components offer possibilities to make vehicles
higher barrier properties for gases like carbon dioxide and oxy lighter, more comfortable, and more aesthetically pleasing.
gen, leading to a longer shelf life for packaged products. In Additives like light stabilizers are used to maintain the original
addition, its higher mechanical strength allows for thinner – properties and appearance of materials and surfaces for as
and therefore lighter – packaging. long as possible. Tinuvin® 880 is a novel light stabilizer that
Our new HydroBlue®90 demonstrates that innovation and significantly increases the durability of plastic parts exposed to
enhancement are even possible for products that were patent- UV radiation and heat, making it suitable for automotive appli-
ed over 100 years ago. The product originally went to market cations that require plastics to stand up to high levels of stress.
as an auxiliary agent in dyeing textiles with indigo. Today, Tinuvin® 880 can also be used in the construction, agricultural
HydroBlue®90 ensures consistent high quality in the dyeing and packaging industries.
process. This stability is important for textile producers, as
signs of faulty coloring in denim do not usually appear until Functional Materials & Solutions: To meet ever-tightening
after the garment is already finished. New HydroBlue®90 is exhaust regulations for diesel vehicles, manufacturers employ
especially highly concentrated, shelf-stable, odorless and special catalysts for nitrogen oxides (NOX) such as lean
dust-free. NOX trap (LNT) technology, that is, NOX adsorbers. With
With Ultramid® C37LC, BASF launched a new, high- EMPRO® LNT, BASF has launched a new generation of these
quality copolyamide on the market in 2016. It ensures a stabler catalysts that are especially robust and powerful, even under
and more efficient production process for shrink films used in widely various driving conditions, like city traffic, country roads,
food packaging. Films produced with Ultramid® C37LC are or interstate highways.
considerably softer and more transparent than those made MasterSuna SBS is a new concrete additive that allows
from conventional materials. Manufacturers of fishing nets and previously unsuitable types of sand to be processed into high-
lines can also further increase the quality of their products grade concrete. Clay minerals in sand usually prevent concrete
using the new plastic. superplasticizers from doing their job. With MasterSuna SBS,
even sand containing high levels of clay can be used in the
Performance Products: Flexible food packaging must fulfill production of consistently high-quality concrete. Concrete
the highest functional requirements; at the same time, interest producers save considerable costs, as they no longer need to
is growing in environmentally friendly solutions. That is why we pay for the transport of more suitable sands from distant sand
are constantly enhancing the ink bonding agents of our pits. Fewer sand pits need to be opened, as well, which helps
Joncryl® FLX product line and the laminating adhesives of the protect the environment and landscape.
Epotal® range. These water-based products provide a more
environmentally friendly alternative to solvent-based systems
for flexible packaging. With Epotal®, packaging manufacturers
can also shorten the processing time between order place-
ment and delivery.
36 Management’s Report BASF Report 2016
Innovation
Our Cool Coatings automotive coating technology combines broflanilide. Inscalis® combats piercing-sucking pests like
innovative functional properties with a sophisticated design aphids and whiteflies. An application for approval was submit-
that allows for a broad color palette. The coating formulation ted in 2016. Broflanilide is effective against chewing insects,
reflects infrared light, reducing the vehicle’s surface tempera- like potato beetles and caterpillars, in specialty and field crops;
ture by up to 20°C. This passive temperature management use is also planned in professional pest control. With its novel
reduces the inside temperature by up to 4°C. Cool Coatings mode of action, it is highly effective in low doses and will play
thus enables our customers to save on air conditioning, which an important role in resistance management.
decreases fuel consumption or, in the case of electric vehicles, We submitted the first approval applications for our new
increases range. fungicide, Revysol®, in 2016. The active ingredient Revysol® is
Ultramid® Advanced N, our new portfolio of heat-resis- highly effective in combating a number of hard-to-control
tant polyamides, gives customers in different industries greater fungal infections, like Septoria tritici, an agent that causes leaf
freedom for innovation, such as when it comes to developing blotch in wheat. It will be offered in regionally and customer-
technically sophisticated end-user products. It allows for the specific product formulations and used in all important field
construction of lighter, smaller and more high-performance and specialty crops worldwide. The first market launches are
plastic components for demanding operating conditions, such scheduled for the 2019 growing season upon registration with
as in automotive construction, household appliances or enter- the relevant authorities.
tainment electronics. With Ecovio® EA, BASF has developed For more on Inscalis®, see page 81
a high-performance foam that is bio-based and compostable.
Its excellent properties make it especially suitable for the trans- Oil & Gas: The Wintershall Group concentrates its innova-
port packaging of valuable, heavy or fragile goods that require tion-related activities on improving the success rate of explo-
high shock resistance and durability. ration, developing technologies for reservoirs with challenging
development and production conditions, and increasing the
Agricultural Solutions: We are working with farmers around recovery factor of reservoirs.
the globe to improve the quality and yield of their agricultural In the Düste crude oilfield in Germany, we tested an inno-
production while taking into account societal expectations and vative and environmentally friendly method for increasing the
requirements. To achieve this, we constantly invest in our reservoir’s recovery factor and have achieved positive initial
development pipeline in order to expand our portfolio both in results. Wintershall developed a concept within the BASF
and beyond conventional crop protection – such as in biologi- Verbund for microbial enhanced oil recovery (MEOR): We
cal solutions. In 2016, we invested €489 million in research aim to use tiny life forms found in the reservoir, like microbes
and development in the Crop Protection division, representing and microorganisms, to produce more crude oil. Fed nutrients,
around 9% of sales for the segment. these multiply and produce various natural substances as
Our well-stocked innovation pipeline comprises products metabolic products that can increase the oil recovery factor.
with a launch date between 2016 and 2026. With a peak sales Unlike other enhanced oil recovery (EOR) technologies, the
potential1 of €3 billion, the pipeline comprises innovations from use of microbes in MEOR can have several production-
all business areas. The herbicide Engenia® is being introduced increasing effects at the same time. We also successfully
to the North American market for the 2017 growing season. It managed, for the first time, to model these effects outside of
serves as a key component of dicamba and glyphosate- the reservoir, allowing for more efficient use. A larger field test
tolerant cropping systems for soy and cotton. We are also is scheduled to begin in 2017.
planning the launch of the new insecticides Inscalis® and
1
Peak sales describes the highest sales value to be expected in one year. For more, see the Glossary on page 239.
BASF Report 2016 Management’s Report 37
Investments, acquisitions and divestitures
Investments, acquisitions and divestitures
€4,314 million €2,944 million Optimization
In investments made in 2016 Used for acquisitions in 2016 Of our portfolio through
acquisitions and divestitures
In addition to innovations, investments and acquisitions Investments
make a decisive contribution toward achieving our ambi-
tious growth goals. We are intensifying our investment in We invested €4,222 million in property, plant and equipment
emerging markets and in North America. We use targeted in 2016. Total investments were therefore €1,429 million
acquisitions to supplement our organic growth. lower than in the previous year and €531 million above the
level of depreciation3 in 2016. Our investments in 2016
By investing in our plants, we create the conditions for our focused on the Chemicals, Performance Products and Oil &
desired growth while constantly improving the efficiency of our Gas segments.
production processes. For the period from 2017 to 2021, we In Ludwigshafen, Germany, we started up further sections
have planned capital expenditures1 totaling €19.0 billion. We of our integrated TDI complex in 2016. TDI production began
want to invest more than a quarter of this amount in emerging in August 2016. In November 2016, the TDI plant was tempo-
markets and expand our local presence in order to benefit rarily shut down due to a technical defect in one part. Repair-
from the growth in these regions. In North America, invest- work was ongoing at the time of this report’s release. We
ments in new production facilities form the basis of future continued work on revamping the new superabsorbent tech-
growth. We also continue to develop our portfolio through nology at the site in Antwerp, B elgium, and plan to complete
acquisitions that promise above-average profitable growth, this in 2017.
are driven by innovation, offer added value for our customers, With our partner, PETRONAS Chemicals Group Berhad,
and reduce the cyclicality of our earnings. Investments and headquartered in Kuala Lumpur, Malaysia, we completed con-
acquisitions alike are prepared by interdisciplinary teams and struction on the new aroma ingredients complex at the integrat-
assessed using diverse criteria. In this way, we ensure that ed chemical site in Kuantan, Malaysia. Production facilities for
economic, environmental and social concerns are included in citral and L-menthol will be gradually started up. In June 2016,
strategic decision-making. we began construction of a new automotive coatings plant in
For more on our investments as of 2017, see pages 123 and 124 Shanghai, China, together with our partner Shanghai Huayi Fine
Chemical Co. Ltd., based in Shanghai, China. With these invest-
Investments and acquisitions 2016 (million €) ments, we are expanding our presence in the emerging markets
of Asia.
Invest- Acquisi-
ments tions Total
We are constructing an ammonia production plant in
Intangible assets 92 2,789 2,881
Freeport, Texas, together with Yara International ASA, head-
Thereof goodwill – 1,552 1,552
quartered in Oslo, Norway. At our site in Geismar, Louisiana,
Property, plant and equipment2 4,222 155 4,377
we completed the expansion of our butanediol capacities in
Total 4,314 2,944 7,258
2016. The capacity expansion of our dicamba production in
Beaumont, Texas, is expected to start up in 2017.
2
Including capitalized exploration, restoration obligations and IT investments
In the Oil & Gas segment, we invested primarily in field
development projects in Argentina, Norway and Russia in
2016.
For more on investments within the segments, see page 61 onward
1
Excluding additions to property, plant and equipment from acquisitions, capitalized exploration, restoration obligations and IT investments
3
Including impairments and write-ups
38 Management’s Report BASF Report 2016
Investments, acquisitions and divestitures
Additions to property, plant and equipment1 by segment in 2016 Divestitures
6
1 Chemicals 28% We completed the sale of the global polyolefin catalysts
1
5
2 Performance Products 20% business to W.R. Grace & Co., based in Columbia, Maryland,
3 Functional Materials & Solutions 17% on June 30, 2016. The transaction involved technologies,
€4,222 million
4 Agricultural Solutions 6% patents, trademarks and the transfer of production plants in
5 Oil & Gas 26% 4
Pasadena, Texas, and Tarragona, Spain. These activities had
6 Other (infrastructure, R&D) 3% 2 been assigned to the Catalysts division.
3
On August 26, 2016, we divested our global photoinitiator
business to IGM Resins B.V., based in Wallwijk, Netherlands.
Additions to property, plant and equipment1 by region in 2016 The transaction comprised technology, patents, trademarks,
4 customer relationships, contracts and inventories as well as
3 the photoinitiator production site in Mortara, Italy. These activi
1 Europe 49%
ties had been organized under the Dispersions & Pigments
2 North America 26%
€4,222 million 1 division. High-performance photoinitiators for electronics cus-
3 Asia Pacific 19%
tomers were not part of the transaction, as the electronics
4 South America, Africa, Middle East 6%
industry is one of BASF’s strategic focus areas.
2
1
Including capitalized exploration, restoration obligations We sold the Coatings division’s business with industrial
and IT investments
coatings to the AkzoNobel Group on December 14, 2016. The
transaction included technologies, patents, trademarks, cus-
Acquisitions tomer relationships and inventories as well as the transfer of
two production sites in England and in South Africa.
We gained €155 million worth of property, plant and equip- For more information on divestitures, see the Notes to the Consolidated
Financial Statements from page 174 onward
ment through acquisitions in 2016. Additions to intangible
assets including goodwill amounted to €2,789 million.
On September 26, 2016, we completed the acquisition of
Guangdong Yinfan Chemistry (“Yinfan”) in Jiangmen, China,
and integrated the business into the Coatings division. This
enabled us to add the Yinfan product line to our portfolio of
automotive refinish coatings in Asia Pacific and gain access to
a state-of-the-art production facility for automotive refinish
coatings in China.
The purchase of global surface technology provider
Chemetall from Albemarle Corp. in Charlotte, North Carolina,
was completed on December 14, 2016. With the acquisition
of this business, our Coatings division supplements its port
folio of tailor-made technology and system solutions for sur-
face treatment. The purchase price amounted to $3.1 billion.
Effective January 1, 2017, we acquired the Henkel Group’s
western European building material business for professional
users, broadening the portfolio of our Construction Chemicals
division.
For more information on acquisitions, see the Notes to the Consolidated
Financial Statements from page 174 onward
BASF Report 2016 Management’s Report 39
Business models and customer relations
Business models and customer relations
Cost-effective Customized Innovative
And reliable supplier of classic With products and formulations In close partnership with our
chemicals for specific industries customers
BASF’s customer portfolio ranges from major global Industry orientation
customers and medium-sized businesses to local work-
shops. We align our business models and sales chan- ▪▪ Around half of business units geared toward
nels with the respective customer groups and market specific industries
segments. In line with our strategic principle, “We add ▪▪ Industry teams pool cross-unit expertise,
value as one company,” we tightly bundle our products knowledge and contacts
and services to target the specific needs of customers ▪▪ Industry orientation undergoing systematic,
from various sectors and bring innovations more quickly structured enhancement
to market.
We serve customers from many different sectors with our
In the classical chemicals business, we mostly sell the chem- broad portfolio of diverse competencies, processes, technol
icals produced in our Verbund in bulk. These comprise basic ogies and products. Around half of our business units are
products from the Chemicals segment, such as steam cracker oriented toward industries. By combining expertise and
products, sulfuric acid, plasticizers, caprolactam and isocya- resources, we position ourselves as a solution-oriented sys-
nates. For these basic chemicals, our priority is on supplying tem provider for our customers.
customers reliably and cost effectively. Marketing is carried Yet not all business units can be arranged purely according
out partly via e-commerce. to industry. That is why BASF has created sector-specific
We create a broad range of customized products, partic- groups for key customer industries – like the automotive,
ularly in the Performance Products segment – from vitamins, construction and pharmaceutical sectors – or for growth fields
personal care ingredients and color pigments to paper chemi- such as enzymes. These “industry teams” pool expertise,
cals and plastic additives. In joint projects, we start working knowledge and contacts across different units, sharpen our
closely together with customers already at an early stage in understanding of the value chains in customer industries and
order to develop new products or formulations for a specific work on sector-specific solutions that often could not be
industry. A worldwide network of development laboratories developed within one operating division alone. Our innovations
allows us to quickly adapt our products to local needs. are geared specifically toward these needs and offer sustain-
We offer functionalized materials and solutions tailored able solutions for the packaging and print branches, for exam-
to customers’ requirements, particularly in the Functional ple. This means combining the expertise of seven divisions
Mate rials & Solutions and Agricultural Solutions segments. into one global industry team. Whether keeping food fresh,
These include, for example, engineering plastics, concrete manufacturing user-friendly packaging or optimizing costs –
additives, coatings and crop protection products. We engage we know the needs of the industry. The products and systems
in close partnerships with customers and develop innovations developed by these teams comprise tailor-made solutions for
together that help them optimize their processes and applica- paper packaging, along with adhesives and plastics for pack-
tions. Our understanding of the entire value chain as well as aging or coatings. Our portfolio offers value to paper manufac-
our global structure and market knowledge are key success turers in every phase of their production: Process chemicals
factors here. optimize costs and increase machine efficiency, functional
For information on customer relations in the Oil & Gas segment, see chemicals grant products special properties and finishing
page 84 onward
chemicals improve the appearance and performance of ready-
to-use paper and cardboard.
The close alignment of our business with our customers’
needs is an important component of our “We create chemis-
try” strategy. We will therefore continue the systematic and
structured enhancement of our industry orientation in the
future.
40 Management’s Report BASF Report 2016
Working at BASF
Working at BASF
113,830 Life-long learning 3,120
Employees On center stage Apprentices1
around the world in around 60 occupations
Our employees carry out the goals of the “We create Number of employees
chemistry” strategy. We want to attract and retain t alented
people for our company and support them in their At the end of 2016, BASF had 113,830 employees (2015:
development. To do so, we cultivate a working environ- 112,435); of these, 3,120 were apprentices (2015: 3,240). We
ment that inspires and connects people. It is founded on hired 6,957 new employees Group-wide in 2016. Moreover,
inclusive leadership based on mutual trust, respect and the acquisition of Chemetall especially added to our workforce.
dedication to top performance. Reductions in headcount were related to events such as the
sale of the industrial coatings and polyolefin catalysts busi-
Strategy nesses.
The average percentage of employees who resigned
▪▪ Best Team Strategy focuses on excellent people, during their first three years of employment was 1.2% world-
workplace and leaders wide in 2016. This turnover rate was 0.5% in Europe, 1.5% in
North America, 3.2% in Asia Pacific and 1.9% in South Amer-
The Best Team Strategy is derived from our corporate strategy ica, Africa, Middle East. Our turnover rates are therefore lower
and contributes greatly to the achievement of our goals. We than those of many other companies.
want to form the best team. To achieve this, we focus on three
strategic directions: excellent people, excellent place to work BASF Group new hires in 2016
and excellent leaders. Emphasis here is placed on our attrac-
tiveness in worldwide labor markets, personal and professional December 31, 2016 Thereof women %
development, life-long learning, and supporting and develop- Europe 3,111 30.8
ing our leaders. We are strongly committed to internationally North America 1,584 31.3
recognized labor and social standards and strive to respect Asia Pacific 1,733 32.1
these worldwide. South America, Africa,
Middle East 529 38.9
Total 6,957 31.9
BASF Group employees by region
(Total: 113,830, thereof 24.6% women, as of December 31, 2016)
North America Europe
17,583 70,784
15.4% 62.2%
24.0% 76.0% 27.7% 72.3% 23.9% 76.1% 26.6% 73.4%
South America, Germany: 53,318 (46.8%) Asia Pacific
Africa,
Middle East
23.6% women and 76.4% men
BASF SE: 35,001 (30.7%)
18,156
7,307 21.4% women and 78.6% men 16.0%
6.4%
1
At BASF, the apprenticeship program trains students for technical, scientific and business vocations as well as for trade and craft professions.
BASF Report 2016 Management’s Report 41
Working at BASF
Competition for talent Vocational training
▪▪ High scores in worldwide employer rankings ▪▪ 3,120 apprentices in around 60 occupations worldwide
▪▪ Focus on social media and online marketing ▪▪ Around €104 million spent on vocational training
In the global competition for the best employees and leaders, As of December 31, 2016, BASF was training 3,120 people in
we want to recruit qualified talent in order to achieve our ambi 14 countries and around 60 occupations. We spent a total of
tious growth targets. This is why we continuously review around €104 million on vocational training in 2016, as well as
measures to make our total offer package attractive for about €6 million on the BASF Training Verbund as part of our
employees. For example, we have now expanded our career social commitment in the Rhine-Neckar Metropolitan Region.
website to include a total of 61 countries in 2016. We continue In 2016, 837 apprentices started their vocational training
to make use of social networks to reach candidates and at BASF SE and at German Group companies, filling almost all
ensure an innovative, target-group-appropriate approach
available program slots in Germany. The current shortage of
through digital media, such as 360-degree videos showcasing skilled labor nevertheless presents a challenge that we a ddress
selected workspaces. In North America, our online campaign with various initiatives. In the Rhine-Neckar Metropolitan
to make BASF an attractive employer for women and minori- region, such programs include Start in den Beruf and Anlauf
ties was highly successful. We were able to attract and hire zur Ausbildung, in which 210 young people in the BASF Train-
new employees for the Innovation Campus Asia Pacific in ing Verbund participated in cooperation with partner compa-
Shanghai, China, at our “Live Day” virtual career fair in Asia nies in 2016. The goal here is to prepare participants for a
Pacific. In South America, we trained employees in the use of subsequent apprenticeship within one year, making a contri-
social media as ambassadors of our employee brand. bution to the long-term supply of qualified employees in the
We were once again able to achieve high scores in region. B ecause the number of open vocational training place-
employer rankings in 2016. For example, in a study conducted ments meanwhile outweighs demand, some slots in these
by Universum, BASF was again selected by engineering and IT programs remained unfilled in 2016.
students as one of the 50 most attractive employers in the BASF launched its new apprenticeship campaign in May
world. In North America, BASF was listed among Forbes’ 100 2016, called “Show Us What You’ve Got!” (Zeig’s Uns!).
Best Employers for the second time in a row. We are also far It underscores the fact that, for BASF, an applicant’s overall
ahead of our key competitors in North America on the employ- impression is not made by technical know-how alone;
er rating website glassdoor.com. In Brazil, BASF was once personal interests and strengths like initiative, creativity and
again named one of the top 150 employers in a ranking by team spirit are also decisive factors.
Você SA magazine. At the Ludwigshafen site, we also offer a part-time training
program for newcomers from other fields, so that they can
qualify for a career in chemical production even while working
at their current job.
The “Start Integration” program, begun with 50 place-
ments in 2015, is geared toward refugees with a high proba-
bility of being granted the right to remain in Germany and aims
to integrate them into the labor market in the Rhine-Neckar
Metropolitan Region. BASF expanded the program to 300
placements and, for the 2016/2017 apprenticeship year,
added three modules – include a one-year career prep course
providing instruction in topics like language and intercultural
training.
For more information, see basf.com/apprenticeship
BASF Group employees by contract type (total: 113,830)
December 31, 2016 Thereof women %
Permanent staff 108,376 24.1
Apprentices 3,120 25.5
Temporary staff 2,334 45.3
42 Management’s Report BASF Report 2016
Working at BASF
What we expect from our leaders Learning and development
▪▪ Leaders as role models ▪▪ Life-long learning concept focuses on on-the-job
▪▪ Multifaceted offers for leadership development experience
▪▪ Specific further training for employees in production
Our leaders should be role models for applying our strategy and technical areas
in daily corporate life. We expect them to have a positive ▪▪ Development meetings form important element of
influence on shaping day-to-day business, relaying company employee development
values, and motivating employees. This includes how chal-
lenges are approached and how the leader’s area of respon Learning and development are essential success factors for a
sibility is continuously developed. Our leadership culture is strong company culture. The skills and competencies of our
founded on BASF’s strategic principles and values as well as employees are critical for profitable growth and lasting suc-
on the standards of behavior set out by our global Code of cess. With the Best Team Strategy and regional learning
Conduct. strategies, we want to establish a new learning culture and
We offer our leaders learning and development measures enable life-long, self-guided learning. The learning and devel-
for all phases of their career, coordinating global, regional and opment options cover a range of learning goals: starting a
local opportunities. These are geared toward strengthening career, expanding knowledge, personal development, and
our leaders’ competencies and offer chances to network and leadership training. For example, our Learning Campus in
learn from one another. For example, we began the European Singapore offers development programs for leaders and
Emerging Leader program in 2016, which guides leadership leadership candidates with a focus on strategy, leadership and
candidates into their roles over a period of 1.5 years. Similar innovation. It serves as a platform for new styles of learning
programs are available in other regions, too: In Asia Pacific, for and brings together employees from diverse areas – for our
example, we run an internal training and further development goal is to create a common-ground, inspiring learning experi-
course for leaders to become coaches. ence that enables employees to connect with the company
and with each other. In this regard, we have also been imple-
Leadership responsibility in the BASF Group menting the “MentForMe” mentoring program step by step
since 2016. Our learning activities follow the “70-20-10”
December 31, 2016 Thereof women % philosophy: We apply the elements “learning from experience”
Professionals1 36,909 29.4 (70%), “learning from others” (20%) and “learning through
(Senior) executives2 9,558 19.8 courses and media” (10%).
1
Specialists without disciplinary leadership responsibilities We support employees in production and engineering
2
Employees with disciplinary leadership responsibilities
worldwide with job-specific qualifications and further training.
We have further strengthened our in-plant qualification
measures with in-plant trainers who promote the continuous
professional development of employees in production
and engineering through individual learning assignments.
Moreover, we expanded our programs on safety culture and
knowledge management as well as team and organizational
development.
We spent around €69 million on further training in 2016
(2015: €96 million). Each employee spent an average of 2.0
days on further training in 2016. As part of cost management,
we decided in 2016 to focus training on business and safety-
related courses.
In regular development meetings, held as part of our
annual employee dialogs, employees and leaders outline pros-
pects for individual professional development together and
determine measures for further training and development. This
model was implemented for around 78,150 employees by the
end of 2016. We want to conduct development meetings for
all employees by the end of 2017.
BASF Report 2016 Management’s Report 43
Working at BASF
Managing demographic changes Inclusion of diversity
▪▪ Leadership duties include “leadership in times of ▪▪ Promoting diversity as part of company culture
demographic change” ▪▪ Global goals for increasing percentage of women in
leadership positions
The demographic situation within the BASF Group varies
widely by region. The aging population in areas like Germany We want to utilize diversity for the development of our busi-
and North America presents us with challenges. We are also ness. Promoting diversity is one of the mainstays of our corpo-
occupied with future issues like new technologies, growing rate culture. The strong global character of our markets
digitalization (“Industry 4.0”), and the ever-increasing delay of translates into different customer requirements. We want to
retirement. We create a framework to help maintain the reflect this diversity in our workforce, as well, in order to even
employability of our personnel at all stages of life and ensure better understand the needs of our customers. The aim is to
the availability of qualified employees. Employees and leaders increase our teams’ performance and power of innovation,
are supported with health and exercise programs, flexible and boost creativity, motivation and identification with the
working arrangements, age-appropriate workplaces and company. We are further promoting the appreciation and
demo graphic analyses. The topic “leadership in times of inclusion of diversity. Leaders play an important role here. We
demo graphic change” also forms a part of our leadership support them in strengthening diversity and making the best
programs. In addition, we engage in knowledge management possible use of it in day-to-day business. For example, specific
and systematic succession planning. goals and measures are being developed for such topics as
For more on health protection, see page 99 recognizing and developing different kinds of talent.
Since 2015, BASF has set itself global quantitative goals
BASF Group employee age structure for increasing the percentage of women in leadership posi-
(Total: 113,830, thereof 24.6% women, as of December 31, 2016) tions. In the BASF Group, the global proportion of female
leaders with disciplinary responsibility was 19.8% at the end of
48,148
2016 (2015: 19.5%). We aim to increase this figure to 22–24%
22.8%
37,437 worldwide by 2021, so that the proportion of women in lead-
30.3% ership reflects that of women in the global company workforce.
77.2% 20,073
16.6%
69.7% 2021 Goal
8,172 83.4%
27.9% roportion of women in
P
22–24%
72.1%
leadership positions with
Up to and including Between 26 Between 40 55 years and up disciplinary responsibility
25 years and 39 years and 54 years
Men Women
Considering the relatively low rate of turnover in the BASF
Group’s leadership team, this is an ambitious goal. Further-
more, BASF wants to continue increasing the global percent-
age of senior executives1 that come from countries other than
Germany. This figure was at 36.4% by the end of 2016 (2015:
35.6%).
Moreover, we intend to maintain the proportion of senior
executives with international experience at over 80%. We
exceeded this figure by the end of 2016, reaching 84.6%. With
these goals, we continue to drive our globally integrated
approach to promoting diversity and leadership development.
For more information, see basf.com/diversity
For more on diversity in the Board of Executive Directors and the
Supervisory Board, see page 130
1
The term “senior executives” refers to leadership levels 1 to 4, whereby level 1 denotes the Board of Executive Directors. In addition, individual employees can attain senior executive
status by virtue of special expertise.
44 Management’s Report BASF Report 2016
Working at BASF
Balancing personal and professional life Compensation and benefits
▪▪ Worldwide offers and opportunities ▪▪ Compensation based on employee’s position and
individual performance as well as company’s success
Our identity as an employer includes our belief in supporting ▪▪ Pay generally comprises fixed and variable
our employees worldwide in balancing their personal and components plus benefits
professional lives. Through various offers and opportunities,
we create working conditions that give fair consideration to In addition to market-oriented compensation, BASF’s total
our employees’ individual needs. We want to strengthen offer also comprises benefits, individual opportunities for
their identification with the company and bolster our position development and a good working environment. Our employ-
as an attractive employer in the competition for qualified per- ees’ pay is based on global compensation principles. These
sonnel. Our offer includes flexible working hours, part-time take into account an employee’s position and individual perfor-
employment and mobile working. In 2016, a total of 12.0% of mance as well as the company’s success. Representative
BASF SE employees held part-time positions, of which 69.9% analyses of the Ludwigshafen site have shown that there are
were women. Numerous employees also made use of parental no systematic differences in pay between men and women,
leave. provided the positions and qualifications are comparable. As a
rule, compensation is comprised of fixed and variable compo-
Balancing personal and professional life nents as well as benefits that often exceed legal requirements.
(Total BASF SE employees: 35,001, thereof 21.4% women, In many countries, these include company pension benefits,
as of December 31, 2016)
supplementary health insurance, and share programs.
1,262 In 2016, the BASF Group spent €10,165 million on wages
38.6% and salaries, social security contributions and expenses for
pensions and assistance (2015: €9,982 million). This rep-
680 resents growth of 1.8% in personnel expenses, primarily as
a result of expenses for the long-term incentive program as
90.7% 61.4%
well as wage and salary increases. Partly countering this rise
9.3%
was the lower average number of employees, in addition to
Employees on parental leave Returnees from parental leave currency effects.
(including “partner months”) (including “partner months”) For more information, see the Notes to the Consolidated Financial
Statements on page 188
Men Women
BASF Group personnel expenses (million €)
Our regional initiatives specifically address the needs of our
employees at a local level. Our Work-Life Management
Change
employee center in Ludwigshafen (“LuMit”), provides opportu- 2016 2015 in %
nities for fitness and health, employee assistance, and balanc- Wages and salaries 8,170 7,943 2.9
ing career and personal life – like the company childcare center, Social security contributions
“LuKids,” which offers daycare for 250 children. Around 600 and expenses for pensions
employees take advantage of LuMit every day. We also pro- and assistance 1,995 2,039 (2.2)
vide social counseling at other sites in Germany, such as those Thereof for pension benefits 627 658 (4.7)
in Münster and Schwarzheide, as well as in Asia, South Africa Total personnel expenses 10,165 9,982 1.8
and North America, to help employees overcome difficult life
situations and maintain their employability.
Global Employee Survey
The Global Employee Survey and its follow-up process have
been established for the entire BASF Group ever since the first
survey in 2008. It was last conducted in 2015. Employees and
leaders discussed the results together in all regions, and are
now implementing improvement measures. This pertains to
topics such as supporting employees in their career develop-
ment, intensifying feedback, or supporting leaders and their
teams in driving change and innovation. We conduct the
Global Employee Survey at regular intervals; the next one is
scheduled for 2018.
BASF Report 2016 Management’s Report 45
Working at BASF
Employees participate in the company’s success Global labor and social standards
▪▪ Return on assets determines variable compensation ▪▪ Alignment with U.N. Guiding Principles
▪▪ “plus” share program fosters employees’ long-term on Business and Human Rights
participation in company ▪▪ Adjusted management process for monitoring
adherence to labor and social standards
With variable compensation components, we involve employ-
ees in the company’s success and reward individual perfor- Our voluntary commitment to respecting international labor
mance. The same principles basically apply for all employees. and social standards is embedded in our global Code of Con-
The amount of the variable component is determined by the duct. This encompasses internationally recognized labor
company’s economic success (measured by the return on norms as stipulated in the United Nations’ Universal Declara-
assets1 of the BASF Group) as well as the employee’s individ- tion of Human Rights, the OECD Guidelines for Multinational
ual performance. Individual performance is assessed as part Enterprises, and the Tripartite Declaration of Principles Con-
of a globally consistent performance management process. cerning Multinational Enterprises and Social Policy of the Inter-
In numerous Group companies, employees are offered the national Labour Organization (ILO). BASF strives to uphold
chance to purchase shares. The BASF share program “plus” these standards worldwide. We mainly approach our adher-
sponsors employees’ long-term participation in the company ence to international labor and social standards using three
through incentive shares: By investing a portion of their com- elements: the Compliance Program (including external compli-
pensation in BASF shares, they take part in the long-term ance hotlines), close dialog with our stakeholders (such as
development of BASF. with employee representatives or international organizations),
BASF offers its executives the opportunity to participate in and the global management process for the respect of inter-
a share-price-based compensation program. This long-term national labor norms.
incentive (LTI) program ties a portion of their compensation to In 2016, we continued the restructuring of our manage-
the long-term performance of BASF shares. In 2016, 92% of ment process begun in 2015. In the previous year, a global
the approximately 1,200 eligible executives worldwide partici- team of experts had already drafted a Group-wide BASF
pated in the LTI program, investing up to 30% of their variable guideline on complying with international labor and social
compensation in BASF shares. standards2. This provided the basis for developing a process
For more information, see the Notes to the Consolidated Financial that determines potential gaps in complying with these stan-
Statements from page 216 onward
dards. The management process will now be implemented
successively around the world. A monitoring system launched
Dialog with employee representatives in 2016 keeps track of the situation in countries in which BASF
is active, and regularly reviews the implementation of set goals
Open dialog with employee representatives is an important and measures. We performed a risk-based analysis of 43
component of our corporate culture. If restructuring leads to countries by the end of 2016. The remaining countries are
staff downsizing, for example, we work with employee repre- scheduled to be reviewed in 2017.
sentatives to develop socially responsible implementation For more on labor and social standards, see
basf.com/labor_social_standards
measures. This is done in accordance with the respective legal
For more on global standards, see page 24
regulations and the agreements reached. The BASF Europa
For more on our sustainability-related risk management, see page 29
Betriebsrat (European Works Council) addresses cross-border
For more on Compliance, see page 134 onward
matters in Europe.
Together with employee representatives, we continued to
elaborate on the future topics described by the company and
works council in the BASF SE 2020 site agreement in 2016.
For example, new principles for promoting apprentices were
described in BASF SE’s “Apprenticeship of the Future.” We are
engaged in close exchange with employee representatives on
the topic of changes through increasing digitalization in order to
identify and jointly address challenges.
For more information, see basf.com/employeerepresentation
1
To calculate variable compensation, total return on assets is adjusted for special items.
2
The guideline provides concrete interpretations for the topics outlined in the global Code of Conduct under “Human Rights and International Labor Standards.”
46 Management’s Report BASF Report 2016
Social commitment
Social commitment
New strategy €47.0 million Two pillars
BASF hones societal Spent on donations, Nonprofit activities
activities to have even sponsorship and and business-oriented
greater impact BASF Group’s own projects projects
We take on social responsibility: We are involved in Two pillars of social commitment
diverse projects worldwide, especially in the communities
where our sites are located. Our main focus is on life-long In its Social Engagement Strategy, BASF combines two pillars
learning and access to education. In this way, we promote under one roof: donations and the company’s own nonprofit
innovative capacity and future viability. activities (Corporate Citizenship) along with business-oriented
projects (Starting Ventures).
Strategy Corporate Citizenship activities aim to help create a livable
surrounding region for our sites’ neighbors, employees and
In 2016, we revamped our activities in terms of social commit- families. This means supporting numerous projects like the
ment and designed them to have an even greater impact. The “Connected to Care” program begun in 2015. Employees
Social Engagement Strategy serves as our launchpad – we around the world form teams to carry out volunteer projects
use this to strengthen our global approach to the topic. The together with nonprofit organizations.
strategy revolves around support projects having a lasting With our Starting Venture program, we develop entrepre-
impact on society and offering learning opportunities for par- neurial solutions to support low-income demographic groups
ticipating cooperation partners and BASF. The common thread in emerging markets in their efforts to improve their quality of
throughout all worldwide social commitment activities is pro- life. We achieve this through projects in various customer
vided by the Sustainable Development Goals of the United industries and regions that aim to increase employment
Nations. Regional emphasis topics help us tailor our engage- opportunities and improve access to products. For example,
ment toward local needs. BASF supports young people from low-infrastructure urban
The BASF Group spent a total of €47.0 million supporting areas in Chile with occupational training in the field of auto
projects in 2016; we donated 49.6% of this amount (2015: motive coatings. 75 young people have achieved certification
€56.2 million, 46% of which were donations). The decline in so far and are now in a position to take up employment at our
comparison with 2015 is attributable to the previous year’s customers. The Starting Venture program thus also contrib-
individual special projects in honor of BASF’s anniversary.
utes to our long-term business success.
We support initiatives that reach out to as many people as
possible and have long-term impact. We foster education, BASF Stiftung
science, social projects, arts and culture, and sports in the
communities around our sites. On a regional level, we work The BASF Stiftung, a nonprofit organization, supported a
together with universities, schools and nonprofit organizations. school nutrition project of the United Nations World Food
We support BASF Stiftung, a charitable foundation, in its inter- Programme in Colombia in 2016 as part of its humanitarian
national projects with various U.N. and nongovernmental development work. There, healthy school meals are an import-
organizations. ant motivation for students – especially from low-income
families – to attend school. The project also collaborates with
BASF Group donations, sponsorship and own projects in 2016 small-holder farmers who supply the participating schools with
(million €) groceries. The small-holder farmers are given specific training
6 in advance.
1 Education 16.7 35.5% 5 In the 2016 year-end donation campaign, the company
2 Social projects 14.2 30.2%
4
1 and its employees gave around €337,000 to BASF Stiftung,
3 Culture 5.3 11.3%
€47.0 million which is using the sum to support a World Food Programme
4 Science 2.7 5.7%
3 initiative to improve living conditions for people in Ethiopia.
5 Sports 2.9 6.2%
For more information, see basf.com/international_donations
6 Other 5.2 11.1%
2
BASF Report 2016 Management’s Report 47
The BASF Group business year — Economic environment
The BASF Group business year
Economic environment
2.3% 1.9% 3.4%
Growth in global gross Growth in global Growth in global
domestic product industrial production chemical industry
The global economy grew only moderately in 2016 but Gross domestic product
was subject to regional fluctuations. While growth in the (Real change compared with previous year1)
emerging markets remained almost unchanged in com-
parison with 2015, it decelerated in the industrialized World 2016 2.3%
countries due to the U.S. economy’s initially weak 2015 2.7%
dynamic. In the European Union, growth in gross domes- European Union 2016 1.9%
tic product was just marginally below the previous year’s 2015 2.2%
level despite the heightened uncertainty before and after United States 2016 1.6%
the British referendum on leaving the E.U. Gross domestic 2015 2.6%
product in China grew only slightly more slowly thanks to Emerging markets 2016 6.0%
of Asia 2015 6.3%
governmental economic measures. Overall, global gross
domestic product grew by 2.3%, as we had anticipated, Japan 2016 1.0%
remaining behind the level of 2015 (+2.7%). The average 2015 1.2%
price for a barrel of Brent blend crude oil fell to $44 per South America 2016 (2.5%)
barrel (2015: $52 per barrel). 2015 (1.8%)
For the outlook for the economic environment in 2017,
1
Figures that refer to previous years may deviate from last year’s report due to statistical
see page 119 onward revisions.
Trends in the global economy in 2016 Economic trends by region
The global economic environment was marked in 2016 by ▪▪ Economic growth somewhat slower in the E.U.
expansive monetary policy, low raw materials prices that ▪▪ Weaker growth in the U.S.
nevertheless stabilized over the course of the year, and a
▪▪ Slowdown in China lighter than expected;
modest growth dynamic. The especially low price of oil during stable growth in emerging markets of Asia
the first half of the year dampened growth in the oil-producing ▪▪ Further decline of GDP in South America
countries and reduced the propensity to invest there, including
the United States. Small levels of inflation, historically low inter- In 2016, growth in the European Union’s gross domestic
est rates and a weak euro supported growth in Europe. product slowed slightly, from 2.2% in 2015 to 1.9%. Develop-
The currencies of many emerging economies that export ment in the region continued to be marked by widely divergent
raw materials were weaker than in the previous year, but trends in 2016: In northwestern Europe, growth rates remained
appreciated considerably over the course of 2016. This was at a solid level overall. In the United Kingdom, the increase in
due in part to a gradual rise in oil and precious metal prices in gross domestic product slackened only marginally after the
addition to the U.S. Federal Reserve’s cautious interest rate referendum on a British exit from the E.U. Germany’s eco
policy. Economic uncertainty increased considerably as the nomic growth was at a comparatively robust 1.8% while that
year progressed, largely as an effect of the British vote to exit of France was more moderate, at 1.1%. In southwestern
the E.U., but also because of continuing geopolitical conflicts Europe, Spain continued its dynamic pace (+3.2%). By
and unpredictability before and after the U.S. presidential contrast, Italy (+1.0%) and Portugal (+1.4%) were not able to
elections. boost their economies to such a considerable extent. The
central and eastern E.U. countries also boasted above-
average growth (+2.8%), helped along by low inflation rates,
ongoing low unemployment levels and the stable development
of exports. In Russia, the economy shrank only slightly (–0.2%)
after the previous year’s sharp decline (–2.8%), partly thanks
to the stabilization in oil prices over the course of the year.
48 Management’s Report BASF Report 2016
The BASF Group business year — Economic environment
Growth in the United States during the first two quarters was matched the prior year’s level. Industry in China cooled down
considerably below the average for the year. Reasons included only slightly, thanks to governmental stimulus. The recession
weak investment activity in the oil industry and cyclical inven- continued in South America: Industrial production shrank in
tory effects. Private consumption bolstered the economy. In Brazil by 6.0% (2015: –8.2%).
the second half of the year, growth picked up thanks to The chemical industry’s key customer sectors developed
increased investment and positive development in agricultural better on average than industrial production. Global auto
exports. Overall, the U.S. economy grew by only 1.6% in 2016 motive production grew by 4.5%, outpacing the previous
(2015: +2.6%), remaining behind its medium-term pace of year. In western Europe and North America, the sector contin-
around 2%. ued its economic upswing. Tax incentives in China boosted
Economic output in the emerging markets of Asia saw a demand; however, production fell drastically in South America
somewhat slower increase as compared with the previous and Russia. The global rate of growth in the construction
year (2016: +6.0%, 2015: +6.3%). This was largely attributable industry was 2.8%, down from the previous year’s +3.5%. In
to the only slightly slower growth in China (2016: +6.7%; 2015: western Europe, construction saw slightly higher growth than
+6.9%). The construction and automotive industries benefited in 2015; in the eastern countries of the European Union, the
from government investments as well as impetus provided by expiration of E.U. funding programs led to decreased activity.
monetary and fiscal policy. In this environment, the neighbor- Growth in the United States slowed considerably. In China,
ing Asian countries grew at a relatively stable rate; India once construction volumes rose at around the same rate as 2015 as
again saw rapid expansion, at 6.8% (2015: +7.9%). a result of governmental support measures. Globally, agricul-
At 1.0%, growth remained modest in Japan. The appreci- ture grew by 1.4%, behind the level in previous years; produc-
ation of the yen against the U.S. dollar (around 10% compared tion weakened in South America especially.
with the previous year) and lower demand from China reduced
both the year’s average exports and private companies’ pro- Growth in key customer industries
pensity to invest. Lower imports, weakly growing private con- (Real change compared with previous year1)
sumption, expanding housing investment and public expen
Industry total 2016 1.9%
ditures compensated for these negative effects, so that the
2015 2.0%
Japanese economy’s overall growth was about as strong as in
Transportation 2016 3.0%
the previous year.
2015 1.2%
Gross domestic product shrank once again in South
Energy and 2016 (0.3%)
America, by 2.5% (2015: –1.8%). Economic performance in
resources 2015 1.4%
Brazil remained 3.4% behind the previous year (2015: –3.8%).
Construction 2016 2.8%
Gross domestic product declined in Argentina, as well, shrink-
2015 3.5%
ing by 2.3% against the backdrop of high inflation and fiscal
Consumer goods 2016 2.6%
consolidation measures (2015: +2.6%). Venezuela and Ecua-
2015 2.0%
dor suffered from the low price of crude oil; gross domestic
Electronics 2016 4.7%
product declined in both countries. The other countries in the
2015 3.8%
region grew moderately on average.
Health and nutrition 2016 3.5%
2015 2.8%
Trends in key customer industries
Agriculture 2016 1.4%
2015 2.1%
▪▪ Global industrial production increases at rate
similar to 2015 1
Figures that refer to previous years may deviate from last year’s report due to statistical
revisions.
▪▪ Development in key customer industries
improves on average
BASF sales by industry 2
(Direct customers)
Global industrial production grew by around 1.9% in 2016,
about the same as in the previous year (+2.0%). Growth in the >20% Chemicals and plastics
advanced economies slowed slightly (2016: +0.8%, 2015: 10 –20% Consumer goods | Transportation
+1.0%) but remained constant in the emerging markets (2016: 5 –10% Agriculture | Construction | Energy and resources
+3.0%, 2015: +3.0%). <5% Health and nutrition | Electronics
Industrial growth in the European Union increased margin- 2
Changes in percentages from the previous year are mainly a result of the asset swap
ally to 1.4% from 1.3%. In the United States, industrial produc- with Gazprom.
tion nearly stagnated (2016: +0.3%; 2015: +1.3%). At 5.5%,
industrial growth in the emerging markets of Asia roughly
BASF Report 2016 Management’s Report 49
The BASF Group business year — Economic environment
Trends in the chemical industry Important raw material price developments
▪▪ Global growth corresponds to our expectations ▪▪ Prices continue to fall for crude oil and naphtha
▪▪ Gas prices below previous year’s level, but with
The chemical industry (excluding pharmaceuticals) grew at the wide regional variance
rate we had anticipated, by 3.4%. The fastest growth was
seen in chemical production in the emerging markets of Asia Averaging around $44 per barrel in 2016, the price of Brent
(2016: +6.3%, 2015: +6.6%). Chemical production increased blend crude oil dropped by about 15% compared with the
only marginally in the European Union (2016: +0.4%, 2015: previous year ($52 per barrel). The oil price fluctuated over the
+0.9%). There were substantial regional differences. Produc- course of the year between $31 per barrel in January and $54
tion fell considerably in Belgium and the United Kingdom, per barrel in December.
while the Netherlands saw a sharp increase. Chemical pro- The average monthly price for the chemical raw material
duction declined slightly in Germany. Growth in the United naphtha ranged over the course of 2016 between $293 per
States was weaker than in the previous year (2016: +0.6%, metric ton in February and $462 per metric ton in December.
2015: +1.9%1). Thanks to significant production expansion in At $385 per metric ton, the annualized average price of naph-
Mexico, overall growth for North America shrank at a slower tha in 2016 was below the level of 2015 ($462 per metric ton).
rate (2016: +0.9%, 2015: +1.8%). South America saw a mar- The average price of gas in the United States was
ginal decline in chemical production (2016: −0.8%, 2015: $2.49 per mmBtu, under the previous year’s level ($2.61 per
−3.8%). Production volumes grew slightly in Japan, at 1.5% mmBtu). In Europe, the average price of gas on spot markets
(2015: +1.6%). remained substantially higher, at $4.58 per mmBtu (2015:
$6.49 per mmBtu). Gas prices in China averaged around
Chemical production (excluding pharmaceuticals) $6.54 per mmBtu nationally (2015: $9.81 per mmBtu), while
(Real change compared with previous year2) the average price in the coastal regions was $7.72 per mmBtu
(2015: $11.20 per mmBtu).
World 2016 3.4%
2015 3.6%
European Union 2016 0.4%
2015 0.9%
United States 2016 0.6%
2015 1.9%
Emerging markets 2016 6.3%
of Asia 2015 6.6%
Japan 2016 1.5%
2015 1.6%
South America 2016 (0.8%)
2015 (3.8%)
2
Figures that refer to previous years may deviate from last year’s report due to statistical
revisions.
Price trends for crude oil (Brent blend) and naphtha ($/barrel, $/metric ton)
$/t $/bbl
1,100 130
1,000 120
900 110
800 100
700 90
600 80
500 70
400 60
Naphtha Crude oil
300 50
ø 2016: $385/t ø 2016: $44/bbl
200 40
ø 2015: $462/t ø 2015: $52/bbl
100 30
2011 2012 2013 2014 2015 2016
1
This figure deviates significantly from last year’s report due to statistical revisions.
50 Management’s Report BASF Report 2016
The BASF Group business year — Results of operations
Results of operations
In 2016, our market environment continued to be volatile Income from operations
and challenging; the global economy and the chemical
industry saw slower growth. Overall, BASF Group business ▪▪ EBIT before special items 6% below 2015 level,
developments unfolded in line with our expectations. We at €6,309 million
posted a considerable sales decline compared with the ▪▪ At €6,275 million, EBIT matches prior-year level
previous year and a slightly lower income from operations ▪▪ EBIT after cost of capital rises considerably
(EBIT) before special items. These developments were
largely the result of the divestitures completed in 2015 as At €6,309 million, income from operations (EBIT) before
well as price declines due to further drops in raw material special items was €430 million below the level of the previous
prices. Increased sales volumes and reduced fixed costs year. This was largely a consequence of the considerable
helped counter this effect, even allowing us to achieve decline in the Oil & Gas segment resulting mainly from falling
considerably higher EBIT before special items in the prices and the divestiture of the natural gas trading and stor-
chemicals business1. age business. The activities transferred to Gazprom had
Business reviews by segment can be found from page 59 onward contributed around €260 million to EBIT before special items
in 2015. In the Agricultural Solutions segment, EBIT before
Sales special items matched the previous year’s level. We achieved
a considerable increase in the chemicals business thanks to
▪▪ Sales down 18% to €57,550 million sharply improved contributions from the Performance Prod-
ucts and Functional Materials & Solutions segments.
Sales for 2016 decreased by €12,899 million to €57,550 mil- For an explanation of the figure EBIT before special items, see page 28
lion. This was mainly attributable to the divestiture of the gas
trading and storage business as part of the asset swap with EBIT before special items (million €)
Gazprom at the end of September 2015. This business had
contributed €10.1 billion to sales in 2015. In addition, lower oil, 2016 6,309
gas and other raw material prices led to a drop in sales prices, 2015 6,739
reducing sales in the chemicals business – especially the 2014 7,357
Chemicals segment – as well as in the Oil & Gas segment. We 2013 7,077
were able to continually raise sales volumes over the course of 2012 6,647
the year, and achieved slight volumes growth overall. Volumes
grew slightly in the Chemicals, Performance Products and Special items in EBIT amounted to minus €34 million in 2016,
Oil & Gas segments. The Functional Materials & Solutions compared with minus €491 million in the previous year.
segment posted a significant increase, and Agricultural Solu- This development was mainly due to the special items
tions a slight decrease. Currency effects slightly dampened recognized in other charges and income, which amounted to
sales. minus €44 million in 2016. In the previous year, other charges
and income totaled minus €729 million, mostly comprising
Sales (million €) impairments on assets in the Oil & Gas segment.
Special charges from various restructuring measures came
2016 57,550 out to minus €394 million compared with minus €223 million in
2015 70,449 the previous year.
2014 74,326 Divestitures in 2016 resulted in an earnings contribution of
2013 73,973 €431 million, after €476 million in the previous year, especially
2012 72,129 from the sale of the industrial coatings business and the poly-
olefin catalysts business in the Functional Materials & Solutions
Factors influencing sales of the BASF Group segment.
Integration costs for acquired businesses amounted to
Change in €27 million, compared with €15 million in 2015.
million € Change in %
For the definition of special items, see page 28
Volumes 1,689 2
Prices (3,166) (4)
Currencies (767) (1)
Acquisitions 63 0
Divestitures (10,718) (15)
Changes in scope of consolidation – –
Total change in sales (12,899) (18)
1
Our chemicals business comprises the Chemicals, Performance Products und Functional Materials & Solutions segments.
BASF Report 2016 Management’s Report 51
The BASF Group business year — Results of operations
Sales and earnings (million €)
2016 2015 Change in %
Sales 57,550 70,449 (18.3)
Income from operations before depreciation and amortization (EBITDA)
and special items 10,327 10,508 (1.7)
EBITDA 10,526 10,649 (1.2)
EBITDA margin % 18.3 15.1 –
Amortization and depreciation1 4,251 4,401 (3.4)
Income from operations (EBIT) 6,275 6,248 0.4
Special items (34) (491) 93.1
EBIT before special items 6,309 6,739 (6.4)
Financial result (880) (700) (25.7)
Income before taxes and minority interests 5,395 5,548 (2.8)
Income before minority interests 4,255 4,301 (1.1)
Net income 4,056 3,987 1.7
Earnings per share € 4.42 4.34 1.8
Adjusted earnings per share € 4.83 5.00 (3.4)
Sales and earnings by quarter in 20162 (million €)
1st quarter 2nd quarter 3rd quarter 4th quarter Full year
Sales 14,208 14,483 14,013 14,846 57,550
Income from operations before depreciation and amortization (EBITDA)
and special items 2,843 2,674 2,490 2,320 10,327
EBITDA 2,812 2,790 2,437 2,487 10,526
Amortization and depreciation1 946 1,072 973 1,260 4,251
Income from operations (EBIT) 1,866 1,718 1,464 1,227 6,275
Special items (40) 11 (52) 47 (34)
EBIT before special items 1,906 1,707 1,516 1,180 6,309
Financial result (188) (177) (283) (232) (880)
Income before taxes and minority interests 1,678 1,541 1,181 995 5,395
Net income 1,387 1,092 888 689 4,056
Earnings per share € 1.51 1.19 0.97 0.75 4.42
Adjusted earnings per share € 1.64 1.30 1.10 0.79 4.83
Sales and earnings by quarter in 20152 (million €)
1st quarter 2nd quarter 3rd quarter 4th quarter Full year
Sales 20,067 19,078 17,424 13,880 70,449
Income from operations before depreciation and amortization (EBITDA)
and special items 2,949 2,952 2,502 2,105 10,508
EBITDA 2,890 2,994 2,872 1,893 10,649
Amortization and depreciation1 895 955 983 1,568 4,401
Income from operations (EBIT) 1,995 2,039 1,889 325 6,248
Special items (75) (4) 286 (698) (491)
EBIT before special items 2,070 2,043 1,603 1,023 6,739
Financial result (164) (152) (175) (209) (700)
Income before taxes and minority interests 1,831 1,887 1,714 116 5,548
Net income 1,174 1,265 1,209 339 3,987
Earnings per share € 1.28 1.38 1.31 0.37 4.34
Adjusted earnings per share € 1.43 1.49 1.07 1.01 5.00
1
Amortization of intangible assets and depreciation of property, plant and equipment (including impairments and write-ups)
2
Quarterly results not audited
52 Management’s Report BASF Report 2016
The BASF Group business year — Results of operations
Special items (million €) Financial result and net income
2016 2015 ▪▪ Financial result considerably below, and net income
Restructuring measures (394) (223) slightly above, prior year
Integration costs (27) (15) ▪▪ Earnings per share rise from €4.34 to €4.42
Divestitures 431 476
Other charges and income (44) (729) The financial result fell to minus €880 million in 2016, com-
Total special items in EBIT (34) (491) pared with minus €700 million in the previous year.
Special items reported in financial result – 23 Income from shareholdings decreased from €9 million in
Total special items in income before 2015 to minus €17 million, predominantly due to lower income
taxes and minority interests (34) (468)
from the disposal of shareholdings.
The interest result declined from minus €425 million in
At €6,275 million, EBIT for the BASF Group in 2016 matched 2015 to minus €482 million. This was predominantly from
the level of the previous year (2015: €6,248 million). Included lower interest income, especially from investments in liquid
in this figure is income from companies accounted for using funds, and higher interest expenses in connection with new
the equity method, which rose from €251 million to €307 mil- bank loans outside of the eurozone.
lion. Other financial result fell from minus €284 million in the
previous year to minus €381 million in 2016, due mostly to the
EBIT (million €) decline in interest payments capitalized as construction period
interest and higher currency hedging costs.
2016 6,275 Income before taxes and minority interests dipped
2015 6,248 from €5,548 million in 2015 to €5,395 million in 2016.
2014 7,626 Income taxes were reduced from €1,247 million in 2015 to
2013 7,160 €1,140 million in 2016. At 21.1%, the tax rate was below the
2012 6,742 prior year’s level (22.5%) primarily as a result of currency-
related deferred tax income in Norway, whereas the previous
We once again earned a premium on our cost of capital in year had included currency-related deferred tax expenses.
2016. EBIT after cost of capital amounted to €1,136 million Income before minority interests decreased from
compared with €194 million in the previous year. The cost of €4,301 million to €4,255 million. Minority interests amounted
capital fell by €809 million year-on-year. In addition to the to €199 million, compared with €314 million in 2015.
reduction of the cost of capital percentage by one percentage At €4,056 million, net income exceeded the previous
point, this was primarily the result of the lower level of tied-up year’s level of €3,987 million. Earnings per share increased
capital in inventories and operating receivables. from €4.34 to €4.42.
For an explanation of the figure EBIT after cost of capital, see page 28 For information on the items in the statement of income, see the Notes
The calculation of EBIT as part of our income statement is shown in the to the Consolidated Financial Statements from page 181 onward
Consolidated Financial Statements on page 155 For information on the tax rate, see the Notes to the Consolidated
inancial Statements from page 185 onward
F
EBIT after cost of capital (million €)
Additional figures for results of operations
2016 2015
EBIT of BASF Group 6,275 6,248
▪▪ EBITDA before special items and EBITDA slightly
– EBIT of Other (1,091) (985)
down
– Cost of capital1 6,230 7,039
▪▪ Adjusted earnings per share dip from €5.00 to €4.83
EBIT after cost of capital 1,136 194
Aside from EBIT, EBIT before special items, and EBIT after cost
1
In 2015, the cost of capital percentage was 11%, compared with 10% in 2016.
of capital – figures drawn upon to steer the BASF Group – we
also provide additional performance indicators in this report
that are not defined by IFRS. They should not be viewed in
EBIT after cost of capital (million €)
isolation, but treated as supplementary information.
2016 1,136
2015 194
2014 1,368
2013 1,768
2012 1,164
BASF Report 2016 Management’s Report 53
The BASF Group business year — Results of operations
EBITDA before special items (million €) Return on assets was 8.2%, compared with 8.7% in the
previous year. The decline was partly attributable to the acqui-
2016 2015 sition of Chemetall in December 2016.
EBIT 6,275 6,248
– Special items (34) (491)
EBIT before special items 6,309 6,739 Adjusted earnings per share (million €)
+ Amortization, depreciation and valuation
allowances on intangible assets and property, 2016 2015
plant and equipment before special items 4,018 3,769 Income before taxes and
EBITDA before special items 10,327 10,508 minority interests 5,395 5,548
– Special items (34) (468)
+ Amortization and valuation allowances on
EBITDA (million €) intangible assets 560 801
– Amortization and valuation allowances on
2016 2015 intangible assets contained in special items 52 200
EBIT 6,275 6,248 Adjusted income before taxes
and minority interests 5,937 6,617
+ Amortization, depreciation and valuation
allowances on intangible assets and property, – Adjusted income taxes 1,300 1,716
plant and equipment 4,251 4,401 Adjusted income before
EBITDA 10,526 10,649 minority interests 4,637 4,901
– Adjusted minority interests 197 312
Adjusted net income 4,440 4,589
Income from operations before depreciation, amortization and
special items (EBITDA before special items) and income from Weighted average number
operations before depreciation and amortization (EBITDA) of outstanding shares in thousands 918,479 918,479
are figures that describe operational performance independent Adjusted earnings per share € 4.83 5.00
of age-related amortization and depreciation of assets and
extraordinary valuation allowances (impairments or write-ups). Compared with earnings per share, this figure has been
Both figures are therefore particularly useful in cross-company adjusted for special items as well as amortization of, and valu-
comparisons. EBITDA before special items is also highly useful ation allowances (impairments and write-ups) on, intangible
in making comparisons over time. assets. Amortization of intangible assets primarily results from
At €10,327 million, EBITDA before special items in 2016 the purchase price allocation following acquisitions. The amor-
was down by €181 million compared with the previous year; tization of intangible assets is therefore of a temporary nature.
EBITDA amounted to €10,526 million, or €123 million below The effects of these adjustments on income taxes and on
the level of 2015. minority interests are also eliminated. This makes adjusted
earnings per share a suitable measure for making compari-
sons over time and predicting future profitability.
Return on assets (million €) In 2016, adjusted earnings per share amounted to €4.83
compared with €5.00 in the previous year.
2016 2015
For more information on the earnings per share according to IFRS,
Income before taxes and minority interests 5,395 5,548 see the Notes to the Consolidated Financial Statements on page 181
+ Interest expenses 661 638
Income before taxes and minority interests
and interest expenses 6,056 6,186
Total assets as of January 1 70,836 71,359
Total assets as of December 31 76,496 70,836
Average assets used 73,666 71,098
Return on assets % 8.2 8.7
We calculate return on assets as income before taxes and
minority interests, plus interest expenses, as a percentage of
average assets used. This figure reflects the return inde-
pendently of capital structure.
54 Management’s Report BASF Report 2016
The BASF Group business year — Results of operations
Forecast/actual comparison1
Income from operations (EBIT)
Sales before special items
2016 forecast 2016 actual 2016 forecast 2016 actual
Chemicals slight decline considerable decline considerable decline slight decline
Performance Products at prior-year level slight decline slight increase considerable increase
Functional Materials & Solutions at prior-year level slight increase slight increase considerable increase
Agricultural Solutions slight increase slight decline slight increase at prior-year level
Oil & Gas considerable decline considerable decline considerable decline considerable decline
Other considerable decline considerable decline considerable increase considerable decline
BASF Group considerable decline considerable decline slight decline slight decline
1
For sales, “slight” represents a change of 1–5%, while “considerable” applies to changes of 6% and higher. “At prior-year level” indicates no change (+/–0 %). For earnings, “slight”
means a change of 1–10%, while “considerable” is used for changes of 11% and higher. “At prior-year level” indicates no change (+/–0 %).
Actual development compared with outlook In the Functional Materials & Solutions segment, we were
for 2016 able to raise sales volumes in all divisions in 2016, more than
compensating for price and currency effects. As a result, sales
In 2016, BASF Group sales and EBIT before special items were not at the same level of the previous year, as forecast,
developed in line with our forecast: Sales declined consider- but rose slightly instead. EBIT before special items likewise
ably and EBIT before special items was slightly below the level exceeded our expectations, with a considerable rather than
of 2015. We just barely missed the volumes growth expected slight increase.
in all segments excluding the effects of acquisitions and dives- For the Agricultural Solutions segment, we had anticipat-
titures: In the Agricultural Solutions segment, volumes were ed slight growth in both sales and EBIT before special items.
slightly down, while they rose as anticipated in the chemicals Due especially to dampened demand for insecticides in South
business2 and the Oil & Gas segment. EBIT did not decline America and fungicides in Europe, however, we posted a
slightly as forecast, but rather matched the prior-year level. slight decrease in sales volumes instead of the expected
This was largely the result of special income from the divesti- increase. Negative currency effects also dampened sales.
tures completed in 2016 in the Functional Materials & Solutions Through strict cost management, EBIT before special items
segment. The earnings contribution from the chemicals busi- reached the prior year’s level despite the slight decline in sales.
ness increased considerably in 2016, counter to our assump- In the Oil & Gas segment, sales and EBIT before special
tion that it would slightly d
ecline. Mainly because of this, BASF items fell considerably as expected. We expanded our pro-
Group EBIT after cost of capital rose considerably rather than duction volumes in 2016 in line with our forecast.
decreasing considerably as we had expected. Sales in Other declined considerably, corresponding to
Sales in the Chemicals segment fell considerably in 2016, our expectations. EBIT before special items, however, was
whereas we had expected the decline to be slight. Increased considerably below rather than considerably above the level of
volumes were able to partly offset for the sharp drop in prices, the previous year. This was largely attributable to valuation
but less so than we had foreseen. For EBIT before special effects for our long-term incentive program.
items, we observed only a slight, rather than considerable, In 2016, we invested a total of €3.9 billion in capital expen
year-on-year decline, essentially through the higher margins ditures3, less than the anticipated level of around €4.2 billion.
for isocyanates in the Monomers division. Investments in the Oil & Gas and Performance Products
Contrary to our expectations, sales in the Performance segments in particular were below the values considered in
Products segment were slightly below the previous year’s our planning.
level instead of matching it. Volumes growth was less able For information on our expectations for 2017, see page 122 onward
than we had anticipated to offset price declines and negative
portfolio and currency effects. EBIT before special items rose
not only slightly, but rather considerably, in the Performance
Products segment. In addition to significantly reduced fixed
costs thanks to restructuring measures and strict cost
manage ment, improved margins also contributed to this
development.
2
Our chemicals business comprises the Chemicals, Performance Products und Functional Materials & Solutions segments.
3
Excluding additions to property, plant and equipment resulting from acquisitions, capitalized exploration, restoration obligations and IT investments
BASF Report 2016 Management’s Report 55
The BASF Group business year — Net assets
Net assets
Assets
December 31, 2016 December 31, 2015
Million € % Million € %
Intangible assets 15,162 19.8 12,537 17.7
Property, plant and equipment 26,413 34.5 25,260 35.7
Investments accounted for using the equity method 4,647 6.1 4,436 6.3
Other financial assets 605 0.8 526 0.7
Deferred taxes 2,513 3.3 1,791 2.5
Other receivables and miscellaneous assets 1,210 1.6 1,720 2.4
Noncurrent assets 50,550 66.1 46,270 65.3
Inventories 10,005 13.1 9,693 13.7
Accounts receivable, trade 10,952 14.3 9,516 13.4
Other receivables and miscellaneous assets 3,078 4.0 3,095 4.4
Marketable securities 536 0.7 21 .
Cash and cash equivalents 1,375 1.8 2,241 3.2
Current assets 25,946 33.9 24,566 34.7
Total assets 76,496 100.0 70,836 100.0
Assets Other financial assets increased by €79 million to €605 million
and deferred tax assets rose by €722 million to €2,513 million,
▪▪ Rise in both current and noncurrent assets especially from the increase in provisions for pensions and
▪▪ Noncurrent assets especially boosted by Chemetall similar obligations.
acquisition Other receivables and miscellaneous assets were down by
€510 million to €1,210 million year-on-year. This was largely
Amounting to €76,496 million, the level of total assets was the result of a decline in the positive fair value of derivatives
€5,660 million above that of the previous year. and lower receivables from loans as well as a lower level of
Noncurrent assets rose by €4,280 million to €50,550 mil- defined benefit assets.
lion. The €2,625 million increase in intangible assets was The value of current assets rose by €1,380 million to
mainly due to the Chemetall acquisition. Additions amounted €25,946 million. The €1,436 million increase in trade accounts
to €2,881 million, €1,552 million of which was goodwill. Cur- receivable resulted mainly from higher year-on-year sales in
rency effects increased intangible assets by €409 million. the fourth quarter as well as from currency effects. Inventories
Amortization1 reduced them by €560 million and disposals by grew by €312 million; other receivables and miscellaneous
€91 million. assets fell by €17 million. With the acquisition of Chemetall on
The value of property, plant and equipment rose by December 14, 2016, these three items increased by €276 mil-
€1,153 million to €26,413 million. Additions amounted to lion. Marketable securities rose by €515 million due to the
€4,377 million, €4,222 million of which was to investments, optimization of short-term financial investments.
putting them above the level of depreciation1, which amounted At €1,375 million, cash and cash equivalents were
to €3,691 million. Additions from acquisitions amounted to €866 million below the level of December 31, 2015.
€155 million and arose especially from the Chemetall acquisi- For more on the composition and development of individual asset items,
see the Notes to the Consolidated Financial Statements from page 189
tion. Currency effects increased property, plant and equipment onward
by €570 million. Disposals reduced this item by €242 million,
€97 million of which was attributable to divestitures.
Investments accounted for using the equity method rose
by €211 million to €4,647 million, primarily as a result of addi-
tions and currency effects.
1
Including impairments and write-ups
56 Management’s Report BASF Report 2016
The BASF Group business year — Financial position
Financial position
Equity and liabilities
December 31, 2016 December 31, 2015
Million € % Million € %
Paid-in capital 4,306 5.6 4,317 6.1
Retained earnings 31,515 41.2 30,120 42.5
Other comprehensive income (4,014) (5.2) (3,521) (5.0)
Minority interests 761 1.0 629 0.9
Equity 32,568 42.6 31,545 44.5
Provisions for pensions and similar obligations 8,209 10.7 6,313 8.9
Other provisions 3,667 4.8 3,369 4.8
Deferred taxes 3,317 4.3 3,381 4.8
Financial indebtedness 12,545 16.4 11,123 15.7
Other liabilities 873 1.2 869 1.2
Noncurrent liabilities 28,611 37.4 25,055 35.4
Accounts payable, trade 4,610 6.0 4,020 5.7
Provisions 2,802 3.7 2,540 3.6
Tax liabilities 1,288 1.7 1,082 1.5
Financial indebtedness 3,767 4.9 4,074 5.7
Other liabilities 2,850 3.7 2,520 3.6
Current liabilities 15,317 20.0 14,236 20.1
Total equity and liabilities 76,496 100.0 70,836 100.0
Equity and liabilities Current liabilities grew by €1,081 million to €15,317 million. All
items contributed to this development, with the exception
▪▪ Equity ratio at 42.6%, compared with 44.5% in of financial indebtedness. Trade accounts payable increased
previous year by €590 million, current provisions by €262 million, tax liabilities
▪▪ Net debt rises from €12,935 million to €14,401 million by €206 million and current other liabilities by €330 million.
Current financial indebtedness fell by €307 million. This
Equity rose by €1,023 million to €32,568 million compared was largely on account of the €681 million year-on-year
with the previous year. Retained earnings increased by decrease in outstanding U.S. dollar commercial paper as of
€1,395 million to €31,515 million. Other comprehensive in- December 31, 2016, as well as the scheduled repayment of
come was reduced by €493 million to minus €4,014 million, EUR bonds totaling €900 million. The previously mentioned
primarily because of the remeasurement of defined benefit reclassification of bonds had a counterbalancing effect.
plans. The equity ratio was 42.6% (2015: 44.5%). In total, financial indebtedness grew by €1,115 million to
Compared with the end of 2015, noncurrent liabilities grew €16,312 million. The average maturity of our financial indebted
by €3,556 million to €28,611 million. Provisions for pensions ness was 5.6 years (2015: 5.2 years). Net debt grew by
and similar obligations increased by €1,896 million, mainly as €1,466 million to €14,401 million. This is calculated by sub-
a result of the reduced discount rate in all relevant currency tracting marketable securities and cash and cash equivalents
zones. Noncurrent financial indebtedness rose by €1,422 mil- from current and noncurrent financial indebtedness. This
lion. A bond issued in 2013 with a maturity until 2021 was balance-related indicator provides information on effective
tapped, increasing its volume by €300 million to €1 billion; in indebtedness.
addition, new bonds in EUR, GBP and HKD were issued with For more on the composition and development of individual liability
items, see the Notes to the Consolidated Financial Statements from
an equivalent value totaling €2.6 billion at the end of the year page 196 onward
and maturities between 4 and 15 years, in part to finance the For more on the development of the balance sheet, see the Ten-Year
acquisition of Chemetall. Four bonds in EUR and GBP due in Summary on page 234
2017 with an equivalent value totaling around €1.4 billion were
reclassified to current financial indebtedness. Other provisions
rose by €298 million while other liabilities matched the prior-
year level. Deferred taxes decreased by €64 million.
BASF Report 2016 Management’s Report 57
The BASF Group business year — Financial position
Net debt (million €) We have solid financing. Corporate bonds form the basis of
our medium to long-term debt financing. These are issued in
Dec. 31, 2016 Dec. 31, 2015 euros and other currencies with different maturities as part of
Noncurrent financial indebtedness 12,545 11,123 our €20 billion debt issuance program. The goal is to create a
+ Current financial indebtedness 3,767 4,074 balanced maturity profile and diverse range of investors, and
Financial indebtedness 16,312 15,197 to optimize our debt capital financing conditions.
– Marketable securities 536 21 For short-term financing, we use BASF SE’s U.S. dollar
– Cash and cash equivalents 1,375 2,241 commercial paper program, which has an issuing volume of
Net debt 14,401 12,935 up to $12.5 billion. On December 31, 2016, $1,089 million
worth of commercial paper was outstanding under this pro-
Financing policy and credit ratings gram. Firmly committed, syndicated credit lines of €6 billion
serve to cover the repayment of outstanding commercial
▪▪ Financing principles remain unchanged paper, and can also be used for general company purposes.
▪▪ “A” ratings confirmed These credit lines were not used at any point in 2016. Our
external financing is therefore largely independent of short-
Our financing policy is aimed at ensuring our solvency at all term fluctuations in the credit markets.
times, limiting the risks associated with financing and opti
mizing our cost of capital. We preferably meet our external Financing instruments (million €)
5
financing needs on international capital markets. 1
4
1 Bank loans 2,855
We strive to maintain at least a solid “A” rating, which
2 EUR bonds 9,243 3
allows us unrestricted access to money and capital markets.
3 USD bonds 1,790 €16,312 million
Our financing measures are aligned with our operative business
4 USD commercial paper 1,033
planning as well as the company’s strategic direction and also
ensure the financial flexibility to take advantage of strategic 5 Other 1,391
options. 2
Maturities of financial indebtedness (million €) Off-balance-sheet financing tools, such as leasing, are of
minor importance to us. BASF Group’s most important finan-
2017 3,767
cial contracts contain no side agreements with regard to
2018 1,887
specific financial ratios (financial covenants) or compliance
2019 2,115
with a specific rating (rating trigger).
2020 1,304
For more on the financing tools used, see the Notes to the Consolidated
2021 1,049 Financial Statements from page 208 onward
2022 and beyond 6,190
To minimize risks and exploit internal optimization potential
BASF has good credit ratings, especially in comparison with within the Group, we bundle the financing, financial invest-
competitors in the chemical industry. Rating agency Moody’s ments and foreign currency hedging of BASF SE’s subsidiaries
last confirmed their rating of “A1/P-1/outlook stable” on within the BASF Group where possible. Foreign currency risks
November 28, 2016. Standard & Poor’s adjusted their BASF are primarily hedged centrally by means of derivative financial
rating from “A+/A-1/outlook negative” to “A/A-1/outlook instruments in the market.
stable” on March 14, 2016, and confirmed it most recently Our interest risk management generally pursues the goal
on August 10, 2016. This adjustment was largely based on of reducing interest expenses for the Group and limiting inter-
the weaker market environment, especially for basic and est risks. Interest rate hedging transactions are therefore con-
agricultural chemicals, limited overall volumes growth, and ducted with banks in order to turn selected liabilities to
the considerable drop in the price of crude oil. Uncertainty the capital markets from fixed interest to variable rate or vice
with regard to economic development in China was taken versa.
into consideration, as well. Rating agency Scope has also
been evaluating our creditworthiness since September
2016. They rated BASF at “A/S-1/outlook stable.”
58 Management’s Report BASF Report 2016
The BASF Group business year — Financial position
Statement of Cash Flows Cash used in financing activities amounted to €2,160 mil-
lion in 2016, compared with €3,673 million in the previous
▪▪ Cash provided by operating activities significantly, year. Contributions from minority interests to capital increases
and free cash flow slightly, down year-on-year in Group companies led to a cash inflow of €28 million in 2016.
Changes in financial liabilities resulted in cash inflow of
At €7,717 million, cash provided by operating activities in €579 million. This was largely the result of issuing new bonds
2016 was €1,729 million below the level of the previous year. as well as of tapping an existing bond; the scheduled repay-
Contributing to this was the lower year-on-year level of cash ment of three bonds and scaling back BASF SE’s U.S. dollar
inflow from changes in net working capital, which contains commercial paper program both had a counterbalancing
changes in inventories and receivables as well as in operating effect. In 2016, dividends of €2,664 million were paid to share-
liabilities and other provisions. This resulted primarily from the holders of BASF SE and €103 million to minority interests.
targeted reduction of inventories in 2015. Miscellaneous items Cash and cash equivalents fell by €933 million, amounting
especially included the transfer of disposal gains into cash to €1,375 million as of December 31, 2016.
used in investing activities. In 2015, this item had primarily Free cash flow, which is what remains after subtracting
included the reclassification of gains from the asset swap with payments made for property, plant and equipment and intan-
Gazprom. gible assets from cash provided by operating activities, fell to
Cash used in investing activities amounted to €3,572 million compared with €3,634 million in 2015. The
€6,490 million in 2016 compared with €5,235 million in 2015. decline in cash provided by operating activities was nearly
Payments made for property, plant and equipment and intangi- offset by lower payments made for property, plant and equip-
ble assets were at €4,145 million, below both the prior year’s ment and intangible assets.
level (€5,812 million) and the level of amortization and depreci-
ation of intangible assets and property, plant and equipment Cash flow (billion €)
and financial assets (€4,291 million). 10
Acquisitions and divestitures in 2016 resulted in net pay- 8
ments made of €2,164 million compared with €436 million in 6
net payments received in 2015. The acquisition of Chemetall 4
was primarily responsible. 2
Cash outflow of €181 million from financial assets and 0
other items in 2016 was mainly attributable to the acquisition of 2012 2013 2014 2015 2016
marketable securities. In 2015, the decline in loan receivables Cash provided by operating activities
in particular had led to €141 million in payments received. Payments made for property, plant and equipment and intangible assets1
Free cash flow
For more on investments and acquisitions, see page 37 onward
1
Including investments to the extent that they already had an effect on cash
Statement of cash flows (million €)
2016 2015
Net income 4,056 3,987
Depreciation and amortization of intangible assets, property, plant and equipment, and financial assets 4,291 4,448
Changes in net working capital 104 1,347
Miscellaneous items (734) (336)
Cash provided by operating activities 7,717 9,446
Payments made for property, plant and equipment and intangible assets (4,145) (5,812)
Acquisitions/divestitures (2,164) 436
Financial assets and other items (181) 141
Cash used in investing activities (6,490) (5,235)
Capital increases/repayments and other equity transactions 28 66
Changes in financial liabilities 579 (933)
Dividends (2,767) (2,806)
Cash used in financing activities (2,160) (3,673)
Net changes in cash and cash equivalents (933) 538
Cash and cash equivalents at the beginning of the year and other changes 2,308 1,703
Cash and cash equivalents at the end of the year 1,375 2,241
BASF Report 2016 Management’s Report 59
The BASF Group business year — Business review by segment
Business review by segment
Segment overview (million €)
Income from operations before
depreciation and amortization Income from operations (EBIT)
Sales (EBITDA) before special items
2016 2015 2016 2015 2016 2015
Chemicals 13,461 14,670 3,169 3,090 2,064 2,156
Performance Products 15,002 15,648 2,522 2,289 1,745 1,366
Functional Materials & Solutions 18,732 18,523 2,906 2,228 1,946 1,649
Agricultural Solutions 5,569 5,820 1,305 1,321 1,087 1,090
Oil & Gas 2,768 12,998 1,596 2,587 517 1,366
Other 2,018 2,790 (972) (866) (1,050) (888)
57,550 70,449 10,526 10,649 6,309 6,739
Segment overview (million €)
Income from operations
(EBIT) Assets Investments1
2016 2015 2016 2015 2016 2015
Chemicals 1,983 2,131 13,486 12,823 1,213 1,859
Performance Products 1,648 1,340 14,549 14,232 864 964
Functional Materials & Solutions 2,199 1,607 17,359 13,341 3,679 854
Agricultural Solutions 1,037 1,083 8,899 8,435 266 402
Oil & Gas 499 1,072 12,829 12,373 1,115 1,823
Other (1,091) (985) 9,374 9,632 121 111
6,275 6,248 76,496 70,836 7,258 6,013
1
Additons to property, plant and equipment (thereof from acquisitions: €155 million in 2016 and €91 million in 2015) and intangible assets
(thereof from acquisitions: €2,789 million in 2016 and €136 million in 2015)
Contributions to total sales by segment Contributions to EBITDA by segment
Chemicals 23% Chemicals 30%
Performance Products 26% Performance Products 24%
Functional Materials & Solutions 33% Functional Materials & S
olutions 28%
Agricultural Solutions 10% Agricultural Solutions 12%
Oil & Gas 5% Oil & Gas 15%
Other 3% Other (9%)
60 Management’s Report BASF Report 2016
The BASF Group business year — Business review by segment
Sales1 (million €)
1st quarter 2nd quarter 3rd quarter 4th quarter
2016 2015 2016 2015 2016 2015 2016 2015
Chemicals 3,149 3,866 3,373 3,975 3,377 3,640 3,562 3,189
Performance Products 3,783 4,038 3,846 4,084 3,771 3,899 3,602 3,627
Functional Materials & Solutions 4,408 4,584 4,703 4,916 4,660 4,517 4,961 4,506
Agricultural Solutions 1,780 1,898 1,459 1,678 1,049 1,077 1,281 1,167
Oil & Gas 611 4,993 617 3,668 618 3,606 922 731
Other 477 688 485 757 538 685 518 660
14,208 20,067 14,483 19,078 14,013 17,424 14,846 13,880
Income from operations (EBIT) before special items1 (million €)
1st quarter 2nd quarter 3rd quarter 4th quarter
2016 2015 2016 2015 2016 2015 2016 2015
Chemicals 465 726 467 548 497 633 635 249
Performance Products 547 515 503 304 464 319 231 228
Functional Materials & Solutions 456 431 535 458 497 371 458 389
Agricultural Solutions 591 574 320 365 97 7 79 144
Oil & Gas 66 437 94 431 194 371 163 127
Other (219) (613) (212) (63) (233) (98) (386) (114)
1,906 2,070 1,707 2,043 1,516 1,603 1,180 1,023
Income from operations (EBIT)1 (million €)
1st quarter 2nd quarter 3rd quarter 4th quarter
2016 2015 2016 2015 2016 2015 2016 2015
Chemicals 468 726 467 548 499 631 549 226
Performance Products 535 491 486 368 458 315 169 166
Functional Materials & Solutions 452 464 531 411 492 366 724 366
Agricultural Solutions 590 573 288 365 93 6 66 139
Oil & Gas 66 436 93 430 178 643 162 (437)
Other (245) (695) (147) (83) (256) (72) (443) (135)
1,866 1,995 1,718 2,039 1,464 1,889 1,227 325
EBIT before special items by segment EBIT before special items BASF Group by quarter1
(million €) (million €)
Chemicals 2,064 1st quarter 2016 1,906
Performance Products 1,745 2015 2,070
Functional Materials & Solutions 1,946 2nd quarter 2016 1,707
2015 2,043
Agricultural Solutions 1,087
3rd quarter 2016 1,516
Oil & Gas 517
2015 1,603
Other (1,050)
4th quarter 2016 1,180
2015 1,023
1
Quarterly results not audited
BASF Report 2016 Management’s Report 61
The BASF Group business year — Chemicals
Chemicals
The Chemicals segment consists of the Petrochemicals, Monomers and Intermediates
divisions. In our integrated production facilities – our Verbund – we produce a broad range
of basic chemicals and intermediates in Europe, Asia, North America and South America
for our customers.
Divisions
Petrochemicals Monomers Intermediates
Broad range of basic Isocyanates and polyamides Most comprehensive inter
products and specialties as well as inorganic basic mediates portfolio in the world,
for sectors such as the products and specialties for including precursors for coatings,
chemical and plastics various branches, such as the plastics, textile fibers and crop
industries plastics, automotive, construction protection products
and electronics industries
Sales
Intermediates
€2,681 million
Change: Percentage of sales:
–6% 20%
Petrochemicals
2016:
€5,035 million
Change: Percentage of sales:
€13,461 million –12% 37%
Change:
–8%
2015:
€14,670 million
Monomers
€5,745 million
Change: Percentage of sales:
–6% 43%
Factors influencing sales Income from operations before special items
(million €)
Volumes 3% 2016 2,064
Prices (11%) 2015 2,156
Portfolio 0% Change:
Currencies 0% minus €92 million
Sales (8%)
62 Management’s Report BASF Report 2016
The BASF Group business year — Chemicals
How we create value – an example
Biomass Balance Approach
A groundbreaking way of using renewable resources in the Verbund
Value for BASF Value for our customers and the environment
Externally certified products Increased use of renewable
>40 100%
since introduction in place of fossil raw
materials per product
up to
Since 2013, we have been in a position to flexibly replace The approach can be applied to many of our products and
fossil resources in our current Verbund system with sustain- adjusted to customer specifications. Up to 100% of a product’s
ably generated bio-based raw materials by feeding raw mate- fossil raw materials can be replaced by sustainably produced
rials like biogas or bionaphtha right into the beginning of the biomass while retaining identical product quality. Some of the
value chain. The method is independently certified1 and can be products already certified include dispersions, superabsor-
used in existing production facilities. Based on their formula- bents and plastics. The certification makes it easier for our
tions, we can already allocate and certify the proportion of customers to place products on the market that have been
biomass in more than 40 sales products. Extensions to this produced with the help of renewable resources.
portfolio can be accomplished within a short amount of time
and enable us to quickly react to growing interest in the use of
renewable resources.
For more on the biomass balance approach, see page 94
Strategy
▪▪ Integrated production facilities form core of Verbund We invest in research and development in order to develop
▪▪ Technology and cost leadership provide most new technologies and to make our existing technologies even
important competitive edge more efficient. Cost leadership and a clear orientation along
individual value chains are among our most important compet-
With its production facilities, the Chemicals segment is at the itive advantages. We concentrate on the critical success
heart of the Verbund structure and supplies BASF’s segments factors of the classical chemicals business: making use of
with basic chemicals for the production of downstream economies of scale, the advantages of our Verbund, high
products. We add value with innovations in processes and capacity utilization, continuous optimization of access to raw
production, and invest in future markets to ensure the growth materials, lean processes, and reliable, cost-effective logistics.
of the entire BASF Verbund. As a reliable supplier, we market Furthermore, we are constantly improving our global produc-
our products to customers in downstream industries. We tion structures and aligning these with regional market require-
continually improve our value chains and are expanding our ments.
market position – particularly outside Europe – with new pro- In Ludwigshafen, we will strengthen the Verbund by
cesses and technologies, as well as through investments and replacing our acetylene plant, which occupies a central role
collaborations in future markets. for many products and value chains, with a modern, highly
efficient plant by 2019.
1
Certification standard “Renewable raw materials” of the independent inspection authority TÜV SÜD, Munich, Germany
BASF Report 2016 Management’s Report 63
The BASF Group business year — Chemicals
Products, customers and applications
Division Products Customer industries and applications
Petrochemicals Basic products: ethylene, propylene, butadiene, benzene, Use in BASF-Verbund
alcohols, solvents, plasticizers, alkylene oxides, glycols and
acrylic monomers Chemical and plastics industry, detergent, automotive,
packing and textile industries; production of paints,
Specialties: special plasticizers such as H
examoll®, Dinch®, coatings, and cosmetics as well as oilfield, construction
special acrylates and paper chemicals
Monomers Basic products: isocyanates (MDI, TDI), ammonia, Use in BASF-Verbund
caprolactam, adipic acid, chlorine, urea, glues and
impregnating resins, caustic soda, polyamides 6 and 6.6, Industries such as plastics, electronics, lumber, furniture,
standard alcoholates, sulfuric and nitric acid packaging, textile, construction and automotive
Specialties: electronic chemicals1, metal systems1
Intermediates Basic products: butanediol and derivatives, alkylamines and Use in BASF-Verbund
alkanolamines, neopentyl g
lycol, formic and propionic acid
Plastics, coatings and pharmaceutical industries,
Specialties: specialty amines such as tert-Butylamine, gas production of detergents and cleaners as well as crop
scrubbing chemicals, vinyl monomers, acid chlorides, protection products and textile fibers
chloroformates, chiral intermediates
1
Transferred to the Dispersions & Pigments division on January 1, 2017
Production capacities of significant products2
Sites
South America, Annual capacity
Product Europe North America Asia Pacific Africa, Middle East (metric tons)
Acrylic acid • • • • 1,510,000
Alkylamines • • • 250,000
Formic acid • • • 305,000
Ammonia • 1,525,000
Benzene • • • 910,000
Butadiene • • • 680,000
Butanediol equivalents • • • 670,000
Chlorine • 385,000
Ethanolamines and derivatives • • 430,000
Ethylene • • • 3,480,000
Ethylene oxide • • • 1,445,000
Urea • 545,000
Isocyanates • • • 2,610,000
Caustic soda • 360,000
Neopentyl glycol • • • 205,000
Oxo-C4 alcohols (calculated as butyraldehyde) • • • 1,495,000
Polyamide 6 and 6.6 • • • 820,000
Polyamide precursors • • 1,010,000
PolyTHF® • • • 350,000
Propionic acid • • 150,000
Propylene • • • 2,610,000
Propylene oxide • 675,000
Sulfuric acid • 920,000
Plasticizers • • 535,000
2
All capacities are included at 100%, including plants belonging to joint operations and joint ventures.
64 Management’s Report BASF Report 2016
The BASF Group business year — Chemicals
Capital expenditures
Additional annual capacity Total annual
through expansion capacity
Location Project (metric tons) (metric tons) Startup
Caojing, China Expansion: MDI plant1 240,000 480,000 2017
Freeport, Texas Construction: ammonia plant2 750,000 2017
Geismar, Louisiana Expansion: butanediol plant n/a 160,000 2016
Korla, China Construction: butanediole plant3 100,000 2016
Construction: PolyTHF® plant 50,000 2016
Kuantan, Malaysia Construction: 2-ethylhexanoic acid plant 30,000 2016
Ludwigshafen, Germany Construction: TDI plant 300,000 2015/2016
Replacement: acetylene plant n/a 90,000 2019
Pasadena, Texas Changeover of plasticizers production to
dioctyl terephthalate (DOTP) n/a n/a 2017
1
Operated by an associated company with Huntsman, Shanghai Huayi (Group) Company, Shanghai Chlor-Alkali Chemical Co. Ltd. and Sinopec Group Assets
Management Corp.
2
Operated by an associated company with Yara International ASA
3
Operated by an associated company with Xinjiang Markor Chemical Industry Co. Ltd.
BASF Report 2016 Management’s Report 65
The BASF Group business year — Chemicals
Segment data (million €)
2016 2015 Change in %
Sales to third parties 13,461 14,670 (8)
Thereof Petrochemicals 5,035 5,728 (12)
Monomers 5,745 6,093 (6)
Intermediates 2,681 2,849 (6)
Intersegmental transfers 4,836 5,300 (9)
Sales including intersegmental transfers 18,297 19,970 (8)
Income from operations before depreciation and amortization (EBITDA) 3,169 3,090 3
EBITDA margin % 23.5 21.1 –
Amortization and depreciation1 1,186 959 24
Income from operations (EBIT) 1,983 2,131 (7)
Special items (81) (25) .
EBIT before special items 2,064 2,156 (4)
EBIT after cost of capital 686 692 (1)
Assets 13,486 12,823 5
Investments2 1,213 1,859 (35)
Research and development expenses 182 207 (12)
1
Amortization of intangible assets and depreciation of property, plant and equipment (including impairments and write-ups)
2
Additions to intangible assets and property, plant and equipment (including acquisitions)
Chemicals segment about by raw material prices that were significantly below
prior-year levels, especially in the first half of the year. Produc-
▪▪ Sales decrease by 8% to €13,461 million, tion was resumed at the Ellba C.V. joint operation plant in
due to lower prices Moerdijk, Netherlands, enabling us to slightly increase overall
▪▪ Decline in EBIT before special items by 4% to sales volumes. In North America, volumes decreased mainly
€2,064 million mainly owing to higher fixed costs as a result of lower plant capacity utilization of the condensate
splitter as well as of unscheduled shutdowns of the steam
In the Chemicals segment, sales to third parties decreased by cracker in Port Arthur, Texas.
€1,209 million in 2016 to €13,461 million (volumes 3%, prices
–11%, portfolio 0%, currencies 0%). The reason for this were
Petrochemicals – Factors influencing sales
lower prices as a result of slumped raw material prices, espe-
cially in the Petrochemicals division. We were able to raise our Volumes 1%
volumes overall. Prices (13%)
Income from operations (EBIT) before special items fell by Portfolio 0%
€92 million to €2,064 million, mainly because of higher fixed Currencies 0%
costs from new production plant startups. Lower margins in Sales (12%)
the Petrochemicals and Intermediates divisions also damp-
ened EBIT before special items; higher margins for isocyanates
in the Monomers division helped slow the decline. EBIT
Petrochemicals – Sales by region
decreased by €148 million to €1,983 million. Special charges (Location of customer) 4
3
came mainly from the overhaul of caprolactam production in
Europe. 1 Europe 57%
For the Outlook for 2017, see page 122 2 North America 32%
€5,035 million
3 Asia Pacific 8% 2 1
Petrochemicals 4 South America, Africa, Middle East 3%
▪▪ At €5,035 million, sales down by 12%, mainly
due to price declines
▪▪ EBIT before special items slightly below previous EBIT before special items was slightly below the previous
year’s value owing to lower margins year’s high level due to lower margins overall. Steam cracker
margins fell sharply in North America, while in Europe, they
In the Petrochemicals division, sales to third parties fell by once again matched the high level of 2015. Margins declined
€693 million to €5,035 million in 2016, largely owing to sharp in the acrylic monomers and oxo alcohol businesses due to
declines in sales prices. These were predominantly brought high product availability on the market. Margins developed
66 Management’s Report BASF Report 2016
The BASF Group business year — Chemicals
positively, however, for steam cracker products in Asia and for Intermediates
ethylene oxide and glycols in Europe, largely driven by product
scarcity on the market in the first half of the year. ▪▪ Sales decrease by 6% to €2,681 million on account
of lower prices
Monomers ▪▪ Lower margins primarily responsible for considerable
year-on-year decline in EBIT before special items
▪▪ Sales decrease by 6% to €5,745 million, mainly
on account of lower prices Compared with 2015, sales to third parties decreased by
▪▪ EBIT before special items considerably higher €168 million to €2,681 million in the Intermediates division.
as a result of increased isocyanate margins Sales prices fell once again, due to a sharp drop in raw mate-
rial prices. In the butanediol and derivatives market, intense
In the Monomers division, sales to third parties declined by competitive pressure from the startup of new capacities in
€348 million to €5,745 million in 2016. This was basically the Asia additionally weighed down prices.
result of lower sales prices brought about by a drop in raw We were able to raise our volumes overall, predominantly
material costs, which particularly weighed down sales in the driven by higher sales volumes of amines in North America
polyamide value chain. By contrast, prices increased for iso- and of polyalcohols, especially neopentylglycol, in Asia.
cyanates.
Volumes growth for isocyanates was able to more than
Intermediates – Factors influencing sales
compensate for the decline in the caprolactam business;
sales volumes grew slightly as a result. Volumes 6%
Prices (12%)
Monomers – Factors influencing sales Portfolio 0%
Currencies 0%
Volumes 4% Sales (6%)
Prices (8%)
Portfolio (1%)
Currencies (1%) Intermediates – Sales by region
Sales (6%) (Location of customer) 4
1 Europe 42% 1
3
2 North America 19%
Monomers – Sales by region €2,681 million
(Location of customer) 4 3 Asia Pacific 36%
4 South America, Africa, Middle East 3%
1 Europe 39% 1
2 North America 22% 3 2
€5,745 million
3 Asia Pacific 33%
4 South America, Africa, Middle East 6% EBIT before special items in 2016 was considerably below
the previous year’s level. This was mainly the result of substan-
2 tially shrunken margins in the butanediol and derivatives
business. Slowing the decline were improved margins in the
Increased margins for isocyanates, particularly in the fourth polyalcohols business. Fixed costs rose year-on-year, mainly
quarter of 2016, led to a considerable increase in EBIT before as a result of several production plants beginning operation in
special items. They were able to more than offset lower mar- the second half of 2015. Special charges resulted predomi-
gins in the polyamide value chain as well as the higher fixed nantly from impairments on assets.
costs arising from the startup of new production plants. We expanded our butanediol capacities in Geismar,
Special charges came mainly from the overhaul of capro
Louisiana, in 2016. With our partner PETRONAS, we started
lactam production in Europe. up a plant for 2-ethylhexanoic acid in Kuantan, Malaysia; in
In August 2016, we began production at the TDI complex Korla, China, we have been producing polytetrahydrofuran
in Ludwigshafen, Germany, and started supplying customers (PolyTHF®) since July 2016 with our partner Markor.
for the first time. The plant’s gradual startup had begun in
November 2015. Owing to a technical defect in November
2016, the TDI plant was still undergoing repair at the time of
this report’s publication.
BASF Report 2016 Management’s Report 67
The BASF Group business year — Performance Products
Performance Products
The Performance Products segment consists of the Dispersions & Pigments, Care
Chemicals, Nutrition & Health and Performance Chemicals divisions. Our solutions
enhance the performance of industrial and consumer products worldwide. With our
tailor-made products, our customers can make their production processes more
efficient and give their products improved application properties.
Divisions
Dispersions & Care Chemicals Nutrition & Health Performance Chemicals
Pigments Ingredients for hygiene, Products for the food Customized products
Raw materials for personal care, home and feed industries, for many sectors, from
the formulation of care and industrial & the flavor and mining and the fuel
varnishes, coatings, institutional cleaning fragrance industry industry to plastics
printing and packaging businesses as well as and the pharma- processing
inks, adhesives and for applications in the ceutical industry
construction materials chemical industry
Sales
Performance Chemicals Dispersions & Pigments
€3,805 million €4,530 million
Change: Percentage of sales:
Change: Percentage of sales:
–8% 25% –2% 30%
2016:
€15,002 million
Change:
–4%
2015:
Nutrition & Health €15,648 million
€1,932 million
Change: Percentage of sales:
–3% 13%
Care Chemicals
€4,735 million
Change: Percentage of sales:
–3% 32%
Factors influencing sales Income from operations before special items
(million €)
Volumes 1% 2016 1,745
Prices (2%) 2015 1,366
Portfolio (2%) Change:
Currencies (1%) €379 million
Sales (4%)
68 Management’s Report BASF Report 2016
The BASF Group business year — Performance Products
How we create value – an example
Ingredients from RSPO-certified palm kernel oil
Attracting customers as a reliable supplier and supporting more sustainable cultivation
Value for BASF Value for our customers and the environment
In 2016, purchase of Number of RSPO-certified
certified palm kernel
oil increased to 158,000 metric tons
production sites worldwide
19
The sustainable cultivation of renewable raw materials is gain- With a total of 19 RSPO-certified production sites on four
ing in importance. Our customers in the cosmetic and deter- continents, we offer our customers a secure supply worldwide,
gents and cleaners industries are therefore increasingly making helping them fulfill the obligations they took on for sustainable
use of ingredients containing palm kernel oil that has been palm-based products. Our annual use of palm kernel oil and
certified according to the criteria of the Round Table on Sus- its derivatives requires an average of 785,000 hectares of
tainable Palm Oil (RSPO). The availability of certified palm cultivated acreage. As one of the largest global processors
kernel oil is limited. And yet we were able to expand our pur- of palm kernel oil, we will continue our commitment to continu
chasing volumes by around 32,000 to 158,000 metric tons in ously improving sustainability along the entire value chain.
2016, nearly doubling sales of certified products based on
palm kernel oil. This allows us to meet increasing demand and
participate in actively shaping the evolving market.
Strategy
▪▪ Tailor-made products and solutions improve our We pursue a different business model for standard products,
customers’ applications and processes such as vitamins or dispersions for paper coatings. Here, effi-
▪▪ Global presence ensures reliable supply to customers cient production setups, backward integration in our Produc-
in all regions tion Verbund’s value chains, capacity management, and
▪▪ Pigments activities transferred to independent legal technology and cost leadership are all essential.
entities; new Electronic Materials business unit We support our customers by serving as a reliable supplier
with consistently high product quality, good value for money
We take on the challenges posed by important future issues, and lean processes.
especially population growth: scarce resources, environmental In July 2016, we transferred the global pigments activities
and climatic stressors, greater demand for food and the desire to independent legal entities. The largest is BASF Colors &
for better quality of life. In doing so, we focus on research and Effects GmbH, headquartered in Ludwigshafen, Germany.
development and maintain close relationships to leading com- This reorganization allows for better adaptation to the chal-
panies in our key customer industries. We position ourselves lenges facing the pigment industry.
globally in order to reliably supply customers in all regions. We As of January 1, 2017, all resources of the BASF Group for
invest in the development of innovations that enable our prod- the electronics industry, including the activities of the Mono-
ucts and processes – as well as our customers’ applications mers division for the semiconductor and display sectors, were
and processes – to make a contribution to sustainability: for combined into a new global business unit, Electronic Materials,
example, by allowing resources to be used more efficiently. allocated to the Dispersions & Pigments division. This will
Industry-specific specialties make up a major part of our strengthen our position as a strategic partner to the major
product range. These products create additional value for our electronics manufacturers.
customers, which allows them to stand out from the competi- We began planning construction of a new vitamin A com-
tion. We develop new solutions together with our customers plex in Ludwigshafen, scheduled to start up in 2020.
and strive for long-term partnerships which create profitable
growth opportunities for both sides.
BASF Report 2016 Management’s Report 69
The BASF Group business year — Performance Products
Products, customers and applications
Division Products Customer industries and applications
Dispersions & Pigments Polymer dispersions, pigments, resins, high-performance Raw materials for paints and coatings, adhesives industry,
additives, formulation additives, electronic chemicals1 plastics processing industry, products for construction
chemicals, printing and packaging industry, paper industry,
specialties for the electronics and other industries
Care Chemicals Ingredients for skin and hair cleansing and care products, Cosmetics industry, hygiene industry, detergent and cleaner
such as emollients, cosmetic active ingredients, polymers industry, agricultural industry and technical applications
and UV filters
Ingredients for detergents and cleaners in household,
institution or industry, such as surfactants, enzymes,
chelating agents, polymers, biocides and products for
optical effects
Solvents for crop protection product formulations and
products for metal surface treatments
Superabsorbents for baby diapers, adult incontinence
products and feminine hygiene articles
Nutrition & Health Additives for the food and feed industries, such as vitamins, Food and feed industries, flavor and fragrance industry and
carotenoids, sterols, enzymes, emulsifiers and omega-3 pharmaceutical industry
fatty acids
Flavors and fragrances, such as geraniol, citronellol,
L-menthol and linalool
Excipients for the pharmaceutical industry and selected,
high-volume active ingredients, such as ibuprofen and
omega-3 fatty acids
Performance Chemicals Antioxidants, light stabilizers, pigments and flame retardants Plastics processing industry, automotive industry, fuel and
for plastic applications lubricant industry, oil and gas industry, mining industry,
municipal and industrial water treatment, leather industry
Fuel and refinery additives, polyisobutene, brake fluids and as well as paper industry and packaging made of paper
engine coolants, lubricant additives and basestocks,
components for metalworking fluids and compounded
lubricants
Process chemicals for the extraction of oil, gas, metals and
minerals, chemicals for enhanced oil recovery
Auxiliaries for the production and treatment of leather and
textiles
Functional chemicals and process chemicals for the
production of paper and cardboard, water treatment
chemicals, membrane technologies, kaolin minerals
1
Since January 2017
Production capacities of significant products2
Sites
South America, Annual capacity
Product Europe North America Asia Pacific Africa, Middle East (metric tons)
Anionic surfactants • • • • 600,000
Citral • 40,000
Chelating agents • • • 170,000
Methane sulfonic acid • 30,000
Nonionic surfactants • • • 630,000
Organic pigments • • • • n/a
Polyisobutene • • 215,000
Superabsorbents • • • • 590,000
2
All capacities are included at 100%, including plants belonging to joint operations and joint ventures.
70 Management’s Report BASF Report 2016
The BASF Group business year — Performance Products
Capital expenditures
Location Project Startup
Antwerp, Belgium Modification for new superabsorbent technology 2017
Besigheim, Germany Expansion: production plant for bismuth vanadate pigments 2017
Bradford, England Construction: production plant for bio-acrylamide 2016
Kuantan, Malaysia Construction: aroma ingredients complex 2017
Construction: polyisobutene plant 2017
Ludwigshafen, Germany Expansion: lubricants plant 2016
Expansion: production plant for resins (Laromer®) 2016
Expansion: production plant for pigments (Paliocrom®) 2016
Expansion: vinyl formamide plant 2016
Expansion: polyvinylpyrrolidone plant 2017
Expansion: production plant for resins (Basonat®) 2017
Construction: production plant for vitamin A 2020
Nanjing, China Expansion: polyacrylamide plant 2018
Shanghai, China Modification: polyvinylpyrrolidone plant 2016
BASF Report 2016 Management’s Report 71
The BASF Group business year — Performance Products
Segment data (million €)
2016 2015 Change in %
Sales to third parties 15,002 15,648 (4)
Thereof Dispersions & Pigments 4,530 4,629 (2)
Care Chemicals 4,735 4,900 (3)
Nutrition & Health 1,932 1,998 (3)
Performance Chemicals 3,805 4,121 (8)
Intersegmental transfers 465 463 0
Sales including intersegmental transfers 15,467 16,111 (4)
Income from operations before depreciation and amortization (EBITDA) 2,522 2,289 10
EBITDA margin % 16.8 14.6 –
Amortization and depreciation1 874 949 (8)
Income before operations (EBIT) 1,648 1,340 23
Special items (97) (26) .
EBIT before special items 1,745 1,366 28
EBIT after cost of capital 209 (305) .
Assets 14,549 14,232 2
Investments2 864 964 (10)
Research and development expenses 362 383 (5)
1
Amortization of intangible assets and depreciation of property, plant and equipment (including impairments and write-ups)
2
Additions to intangible assets and property, plant and equipment (including acquisitions)
Performance Products segment In addition, the portfolio measures taken in 2015 — in particu-
lar, the divestiture of parts of our pharmaceutical ingredients
▪▪ At €15,002 million, sales driven down 4% mainly and services business and the paper hydrous kaolin activities,
by prices and divestitures as well as the sale of the textile chemicals business — led to
▪▪ EBIT before special items improves by 28% to diminished sales in 2016. Currency effects slightly dampened
€1,745 million, primarily due to lower fixed costs sales in all divisions. We achieved volumes growth overall in
and higher margins the remaining business.
We raised income from operations (EBIT) before special
At €15,002 million, sales to third parties in 2016 in the Perfor- items by €379 million to €1,745 million. This was mostly due to
mance Products segment were €646 million below the level of significantly reduced fixed costs thanks to restructuring
the previous year. This was primarily attributable to falling sales measures and strict fixed cost management, in addition to
prices and the divestitures completed in 2015 (volumes 1%, improved margins. At €1,648 million, EBIT exceeded the
prices –2%, portfolio –2%, currencies –1%). The drop in sales previous year’s level by €308 million. Special charges were
prices was largely the result of oil-price-related reductions in predominantly attributable to restructuring measures. Special
raw material costs, in addition to ongoing pressure on prices income arose particularly from the sale of the photoinitiator
in the hygiene business. Sharp increases in vitamin prices in business.
the Nutrition & Health division helped counter this d
evelopment. For the Outlook for 2017, see page 122
72 Management’s Report BASF Report 2016
The BASF Group business year — Performance Products
Dispersions & Pigments Care Chemicals
▪▪ Sales at €4,530 million, 2% below 2015 level mostly ▪▪ Sales decrease by 3% to €4,735 million, mainly
owing to lower prices on account of lower prices
▪▪ Considerable increase in EBIT before special items, ▪▪ EBIT before special items improves considerably
primarily through higher margins thanks to reduced fixed costs
At €4,530 million, sales to third parties were €99 million below In the Care Chemicals division, sales to third parties fell by
the level of the previous year in the Dispersions & Pigments €165 million to €4,735 million in 2016. This was p redominantly
division. Lower sales prices weighed down by an oil-price- the result of reduced prices due to lower raw material prices
related drop in raw material costs were the main reason behind and ongoing intense competition in the hygiene business.
this slight decline. We were able to slightly raise overall sales Negative currency effects, especially from the Argentinian
volumes. peso and Brazilian real, additionally dampened sales.
Demand in the dispersions business developed positively, Sales volumes matched the prior-year level in a market
especially in Asia and Europe, but sales as a whole fell on environment that remained difficult. We increased sales
account of price declines. Sales of resins decreased mainly as volumes, especially in our business with ingredients for the
a result of lower prices. The closure of the production plant in detergents and cleaners industry, as well as in the Asia Pacific
Kankakee, Illinois, also weighed down sales; growth impetus, region. This compensated for lower demand, especially in the
on the other hand, came from Europe and Asia. In the addi- hygiene business and in South America.
tives business, rising volumes drove an increase in sales. In
July 2016, we transferred our global p igments activities to
Care Chemicals – Factors influencing sales
independent legal entities. Sales in this sector increased
slightly thanks largely to the positive business development in Volumes 0%
Asia; by contrast, sales fell in Europe. Prices (2%)
Portfolio 0%
Dispersions & Pigments – Factors influencing sales Currencies (1%)
Sales (3%)
Volumes 3%
Prices (4%)
Portfolio 0% Care Chemicals – Sales by region
Currencies (1%) (Location of customer) 4
Sales (2%)
1 Europe 49% 3
2 North America 24% 1
€4,735 million
3 Asia Pacific 17%
Dispersions & Pigments – Sales by region
(Location of customer) 4 4 South America, Africa, Middle East 10%
2
1 Europe 41% 3
1
2 North America 27%
€4,530 million
3 Asia Pacific 26% We were able to reduce fixed costs through strict cost disci-
4 South America, Africa, Middle East 6% pline, thereby more than offsetting the continued pressure on
margins that came largely from the hygiene business. As a
2
consequence, EBIT before special items rose slightly com-
pared with the previous year. Special charges were predomi-
We considerably improved EBIT before special items in 2016, nantly attributable to restructuring measures.
predominantly thanks to higher margins. We held fix costs at In the fourth quarter of 2016, we started up the expanded
the previous year’s level through strict cost discipline. Special production facility for chelating agents, including Trilon® M, at
charges were below the level of the previous year, and were the site in Ludwigshafen, Germany. We increased production
mostly related to restructuring measures. They were partly volumes of surfactants in Dahej, India, in 2016. We continued
offset by gains from the disposal of the photoinitiator business. modification work for the new superabsorbent technology at
the site in Antwerp, Belgium, and plan to complete this in 2017.
BASF Report 2016 Management’s Report 73
The BASF Group business year — Performance Products
Nutrition & Health Performance Chemicals
▪▪ Sales down by 3% to €1,932 million after divestitures ▪▪ Sales down 8% to €3,805 million, mainly due to lower
in pharmaceuticals business prices and divestitures
▪▪ Considerable improvement in EBIT before special ▪▪ EBIT before special items rise slightly, mostly through
items, especially through lower fixed costs and higher reduction in fixed costs
margins and volumes
In the Performance Chemicals division, sales to third parties
Sales to third parties in 2016 declined by €66 million to fell by €316 million to €3,805 million compared with 2015. This
€1,932 million in the Nutrition & Health division. This slight was largely the result of the lower sales prices brought about
reduction came from the sale of parts of our pharmaceutical by a sharp drop in raw material prices, as well as the sale of
ingredients and services business at the end of September the paper hydrous kaolin activities and the textile chemicals
2015. We were able to raise volumes in all business areas. business. Negative currency effects additionally weighed
Demand grew, especially in the pharmaceuticals and animal down sales. We were able to raise our volumes overall, with
nutrition businesses. Sales prices overall were also higher than growth impetus coming particularly from the plastic additives
in the previous year, primarily as a result of significant price business and from the region Europe. Demand for oilfield and
increases for vitamins in the animal nutrition business. This mining chemicals declined, however, in an environment fraught
allowed us to more than compensate for the decline in prices with lower oil and raw material prices.
in the flavor and fragrance business brought about by falling
raw material costs.
Performance Chemicals – Factors influencing sales
Nutrition & Health – Factors influencing sales Volumes 1%
Prices (4%)
Volumes 3% Portfolio (4%)
Prices 3% Currencies (1%)
Portfolio (8%) Sales (8%)
Currencies (1%)
Sales (3%)
Performance Chemicals – Sales by region
(Location of customer) 4
Nutrition & Health – Sales by region
(Location of customer) 4 1 Europe 38% 1
2 North America 26% 3 €3,805 million
1 Europe 40% 3 Asia Pacific 26%
1
2 North America 21% 4 South America, Africa, Middle East 10%
3 €1,932 million
3 Asia Pacific 29%
4 South America, Africa, Middle East 10% 2
2 We achieved a slight rise in EBIT before special items com-
pared with the previous year. This was mainly due to lower
EBIT before special items improved considerably compared fixed costs resulting from restructuring measures and strict
with 2015 due to substantially reduced fixed costs as well as cost discipline. Special charges arose partly on account of
to higher margins and volumes. The reduction in fixed costs these restructuring measures.
was largely thanks to restructuring measures and improved At the Bradford, England, site, in 2016 we started up a
capacity utilization of our production plants. Special charges world-scale bio-acrylamide production plant employing a new
were primarily related to measures implemented to increase enzymatic catalysis process. This will strengthen our polymer
our competitiveness. Special income arose in part from the production network and increase our competitiveness.
sale of the sterol site in Pasadena, Texas, in May 2016.
We concluded the modification of our production plant for
polyvinylpyrrolidone in Shanghai, China, in 2016. With our
partner, PETRONAS, we completed construction of the new
aroma ingredients complex at the integrated chemical site in
Kuantan, Malaysia. Production facilities for c
itral and L
-menthol
will be gradually started up.
74 Management’s Report BASF Report 2016
The BASF Group business year — Functional Materials & Solutions
Functional Materials & Solutions
The Functional Materials & Solutions segment comprises the Catalysts, Construction
Chemicals, Coatings and Performance Materials divisions. They develop and market
system solutions, services and innovative products for specific sectors and customers,
particularly for the automotive, electronics, chemical and construction industries as well
as for household applications, sports and leisure.
Divisions
Catalysts Construction Chemicals Coatings Performance Materials
Automotive and Solutions for building Coatings solutions, Polyurethanes, thermo-
process catalysts, structure and envelopes, surface treatments, plastics and foams
battery materials, interior construction and decorative paints
precious metal trading infrastructure
Sales
Catalysts
Performance Materials
€6,263 million
€6,888 million Change: Percentage of sales:
Change: Percentage of sales:
–1% 33%
2% 37% 2016:
€18,732 million
Change:
1%
2015:
€18,523 million
Construction Chemicals
Coatings €2,332 million
€3,249 million Change: Percentage of sales:
Change: Percentage of sales:
1% 13%
3% 17%
Factors influencing sales Income from operations before special items
(million €)
Volumes 7% 2016 1,946
Prices (5%) 2015 1,649
Portfolio 0% Change:
Currencies (1%) €297 million
Sales 1%
BASF Report 2016 Management’s Report 75
The BASF Group business year — Functional Materials & Solutions
How we create value – an example
Ultraviolet (UV) primer filler
New automotive refinish product for shorter processing time in the workshop
Value for BASF Value for our customers
Expected average sales Time saved in painting
>19% 65%
growth per year
through 2021
up to
Repairing paint damage requires a series of time-consuming The new UV primer filler allows our customers to save up to
steps: For example, primer and filler need to be applied sepa- 65% of their time in repairing paint damage, depending on the
rately, and each needs time for drying and cooling. Our prod- surface material and paint shop equipment. Especially smaller
uct eliminates one step for steel surfaces, as it serves as both and medium-sized repairs can be conducted more economi-
primer and filler. It can also be cured with UVA light, which, cally. The use of UVA light is also considerably more energy-
unlike conventional methods, generates no heat and thus efficient than other curing methods and prevents plastic parts,
requires no cooling time. After the successful launch in 2016, like bumpers, from warping. We market the UV primer filler
we expect annual sales of this UV primer filler to grow by more under our brand names Glasurit® and R-M®.
than 19% on average from 2017 to 2021.
Strategy
▪▪ Development of innovative products and One focus of our strategy is the ongoing optimization of our
technologies in close collaboration with our product portfolio and structures according to different regional
customers market requirements as well as trends in our customer indus-
▪▪ Focus on specialties and system solutions that allow tries. We are positioning ourselves to grow profitably and
our customers to stand out from the competition faster than the market.
We aim to secure our leading market position in Europe, to
We use BASF’s expertise as the world’s leading chemical profitably expand our position in the North American market
company to develop innovative products and technologies in and to selectively extend our activities in the growth regions of
close cooperation with our customers. Our aim is to find the Asia, South America, Eastern Europe and the Middle East.
best solution in terms of cost and functionality, helping our At the end of 2016, we acquired surface technology pro-
customers contribute to sustainable development. Our spe- vider Chemetall from Abermarle Corp., Charlotte, North Caro-
cialties and system solutions enable customers to stand out lina, thereby enhancing our coatings portfolio and supporting
from the competition. our aim to grow profitably in innovative and solution-focused
businesses closer to end users.
76 Management’s Report BASF Report 2016
The BASF Group business year — Functional Materials & Solutions
Products, customers and applications
Operating division Products Customer industries and applications
Catalysts Automotive and process catalysts Automotive and chemical industries, refineries, battery
manufacturers
Battery materials
Solutions for the protection of air quality as well as the
Precious and base metal services production of fuels, chemicals, plastics and battery materials
Construction Chemicals Concrete admixtures, cement additives, underground Cement and concrete producers, construction companies,
construction solutions, flooring systems, sealants, solutions craftspeople, builders’ merchants
for the protection and repair of concrete, high-performance
mortars and grouts, tile-laying systems, exterior insulation Solutions for new building construction, maintenance, repair
and finishing systems, expansion joints, wood protection and renovation of commercial and residential buildings as well
as infrastructure
Coatings Coatings solutions for automotive and industrial applications, Automotive industry, body shops, steel industry, aviation,
technology and system solutions for surface treatments, aluminum applications in the architecture and construction
decorative paints industries, household appliances, painting businesses and
private consumers, wind power industry
Performance Materials Engineering plastics, biodegradable plastics, standard foams, Automotive manufacture, electrical engineering, packaging,
foam specialties, polyurethanes, epoxy systems for fiber- games, sports and leisure, household, mechanical engineering,
reinforced composites construction, medical technology, sanitation and water industry,
solar thermal energy and photovoltaics, wind power industry
Capital expenditures
Location Project Startup
Caojing, China Construction: chemical catalysts plant 2017
Construction: automotive coatings plant 2017
Carmona, Philippines Construction: concrete admixtures plant 2016
Chennai, India Construction: plant for mobile emissions catalysts 2016
Colombo, Sri Lanka Construction: concrete admixtures plant 2016
Gimcheon, South Korea Construction: plant for Ultraform® 2018
Hanoi, Vietnam Construction: concrete admixtures plant 2016
Klang, Malaysia Capacity expansion: plant for flooring solutions 2016
Kolkata, India Construction: concrete admixtures plant 2016
Rayong, Thailand Construction: plant for mobile emissions catalysts 2018
Shanghai, China Capacity expansion: plant for Cellasto® 2016
Construction: technical competence center for automotive coatings 2018
Schwarzheide, Germany Capacity expansion: compounding plant for Ultramid® and Ultradur® 2017
Totsuka, Japan Optimization: coating production 2016
Yeosu, South Korea Capacity expansion: plant for Ultrason® 2017
BASF Report 2016 Management’s Report 77
The BASF Group business year — Functional Materials & Solutions
Segment data (million €)
2016 2015 Change in %
Sales to third parties 18,732 18,523 1
Thereof Catalysts 6,263 6,306 (1)
Construction Chemicals 2,332 2,304 1
Coatings 3,249 3,166 3
Performance Materials 6,888 6,747 2
Intersegmental transfers 736 873 (16)
Sales including intersegmental transfers 19,468 19,396 0
Income from operations before depreciation and amortization (EBITDA) 2,906 2,228 30
EBITDA margin % 15.5 12.0 –
Depreciation and amortization1 707 621 14
Income from operations (EBIT) 2,199 1,607 37
Special items 253 (42) .
EBIT before special items 1,946 1,649 18
EBIT after cost of capital 813 96 .
Assets 17,359 13,341 30
Investments2 3,679 854 331
Research and development expenses 393 392 0
1
Amortization of intangible assets and depreciation of property, plant and equipment (including impairments and write-ups)
2
Additions to intangible assets and property, plant and equipment (including acquisitions)
Functional Materials & Solutions segment Catalysts
▪▪ Sales grow by 1% to €18,732 million ▪▪ Sales decline by 1% to €6,263 million, mainly
▪▪ EBIT before special items increases by 18% to due to lower prices
€1,946 million as a result of higher contributions ▪▪ EBIT before special items improves considerably,
from all divisions mostly through contribution from mobile emissions
catalysts
In the Functional Materials & Solutions segment, sales to third
parties increased by €209 million to €18,732 million. By In the Catalysts division, sales to third parties declined in 2016
increasing volumes in all divisions, we were able to more than by €43 million to €6,263 million. This was predominantly the
compensate for lower prices and mildly negative currency result of price decreases due to lower precious metal prices.
effects (volumes 7%, prices –5%, portfolio 0%, currencies
Currency effects and the sale of our business with polyolefin
–1%). The volumes growth was mainly attributable to higher catalysts had a negative impact on sales.
demand for our products for the automotive industry. We achieved significant volumes growth, especially
Business with the construction industry saw sales volumes at through increased volumes of mobile emissions catalysts.
a high level overall. Greater demand for refinery catalysts and battery materials
Income from operations (EBIT) before special items grew also contributed to this development. Lower volumes of
by €297 million to €1,946 million compared with 2015. All divi- chemical catalysts slowed this growth. In precious metal trad-
sions contributed to this considerable earnings increase, with ing, sales declined by €52 million to €2,336 million due to
particular support from higher margins in the Performance lower prices.
Materials division. Special income in 2016 especially pertained
to the sale of the industrial coatings business as well as the
Catalysts – Factors influencing sales
divestiture of the business with polyolefin catalysts. EBIT rose
by €592 million to €2,199 million. Volumes 9%
For the Outlook for 2017, see page 122
Prices (8%)
Portfolio (1%)
Currencies (1%)
Sales (1%)
78 Management’s Report BASF Report 2016
The BASF Group business year — Functional Materials & Solutions
Catalysts – Sales by region Income from operations before special items was slightly
(Location of customer) 4
higher than the level of 2015, primarily as a result of volumes
growth.
1 Europe 42% 3
1
2 North America 29%
€6,263 million Coatings
3 Asia Pacific 22%
4 South America, Africa, Middle East 7%
▪▪ Sales increase by 3% to €3,249 million
2 ▪▪ EBIT before special items considerably up,
especially in automotive OEM coatings
We considerably raised EBIT before special items year-on-
year, mainly thanks to the higher contributions from the mobile In the Coatings division, sales to third parties in 2016 grew by
emissions catalysts business. In addition, we were able to €83 million to €3,249 million. Higher sales volumes in North
reduce fixed costs through strict cost discipline. Special
America and Asia were able to more than compensate for a
charges resulted primarily from asset impairments and special volumes decline in South America. Prices remained stable
income from the sale of the polyolefin catalysts business in overall; negative currency effects in all businesses had a
June 2016. dampening effect on sales.
Sales of automotive OEM coatings grew slightly thanks to
Construction Chemicals higher volumes in North America and Asia. In the automotive
refinish coatings business, we observed a slight sales decline
▪▪ Sales rise by 1% to €2,332 million as a result of as higher prices could only partly offset negative currency
increased sales volumes effects and slightly lower volumes. The slight sales growth in
▪▪ Slight growth in EBIT before special items, thanks the industrial coatings business was attributable to higher
primarily to higher sales volumes volumes. Sales fell slightly in the decorative paints b
usiness in
Brazil, despite significantly increased sales prices. This was
In the Construction Chemicals division, sales to third parties mostly the result of overall weak demand as well as negative
reached €2,332 million, an increase of €28 million over 2015. currency effects.
Negative currency effects in all regions and lower prices overall
were more than offset by higher sales volumes.
Coatings – Factors influencing sales
In Europe and North America, sales grew as a result of this
volumes increase; prices remained stable. In the region South Volumes 4%
America, Africa, Middle East, lower volumes and negative Prices 0%
currency effects were the main factors behind a drop in sales. Portfolio 1%
Demand declined in Saudi Arabia especially, as the number of Currencies (2%)
public construction projects fell due to low oil prices. Falling Sales 3%
prices were largely responsible for reduced sales in Asia. We
were able to increase volumes in the region.
Coatings – Sales by region
Construction Chemicals – Factors influencing sales (Location of customer) 4
Volumes 4% 1 Europe 39%
1
Prices (1%) 2 North America 20%
€3,249 million
Portfolio 0% 3 Asia Pacific 24%
3
Currencies (2%) 4 South America, Africa, Middle East 17%
Sales 1%
2
We were able to raise EBIT before special items considerably
Construction Chemicals – Sales by region
(Location of customer)
in 2016, especially through the contribution from automotive
4
OEM coatings. Special income came from the sale of the
1 Europe 35% 1 industrial coatings business in December 2016.
2 North America 32% Since December 14, 2016, the Coatings division has
3 €2,332 million
3 Asia Pacific 18% included the Chemetall business, which was acquired from
4 South America, Africa, Middle East 15% Albemarle. This has had no significant influence on the result
for the reporting year 2016.
2
BASF Report 2016 Management’s Report 79
The BASF Group business year — Functional Materials & Solutions
Performance Materials EBIT before special items considerably exceeded that of the
previous year. Contributing significantly to this were higher
▪▪ Sales grow by 2% to €6,888 million through higher margins due to lower raw material prices and the positive
volumes development of our high-margin specialties business. Despite
▪▪ EBIT before special items rises considerably due higher production costs from new plant startups, including the
to stronger margins and specialties business capacity expansion for Cellasto® in Shanghai, China, we were
able to reduce fixed costs compared with 2015.
The Performance Materials division raised its sales to third
parties by €141 million to €6,888 million in 2016. This was
largely thanks to sharp volumes growth, primarily in Asia and
Europe. Prices fell as a result of lower raw material prices.
Negative currency effects and portfolio measures additionally
dampened sales.
Our businesses with the automotive industry developed
positively thanks to significantly higher demand in Asia. We
were especially able to achieve substantial volumes growth for
polyurethane systems, engineering plastics and the special
elastomer Cellasto®.
In the consumer goods industry, sales were slightly down,
primarily on account of lower prices while volumes remained
stable. We particularly achieved higher volumes of engineering
plastics, thermoplastic polyurethanes and biopolymers, while
demand ebbed slightly for polyurethane systems.
Sales to the construction sector also declined as a result of
falling prices and the divestiture of our white expandable poly-
styrene (EPS) business in North and South America in March
2015. Volumes development was positive for polyurethane
systems and functional foams.
Performance Materials – Factors influencing sales
Volumes 8%
Prices (4%)
Portfolio (1%)
Currencies (1%)
Sales 2%
Performance Materials – Sales by region
(Location of customer) 4
3
1 Europe 47%
2 North America 23% 1
€6,888 million
3 Asia Pacific 27%
4 South America, Africa, Middle East 3%
2
80 Management’s Report BASF Report 2016
The BASF Group business year — Agricultural Solutions
Agricultural Solutions
The Agricultural Solutions segment consists of the Crop Protection division. We develop
and produce innovative solutions for the improvement of crop health and yields, and market
them worldwide.
Indications and sectors
Fungicides Herbicides Insecticides Functional Crop Care
Protecting crops against Reducing Combating insect Biological crop
harmful fungi competition from pests in agriculture protection, seed
weeds for water and beyond treatment, polymers
and nutrients and colorants
Sales
Functional Crop Care
Insecticides
€289 million
€735 million Change: Percentage of sales:
Change: Percentage of sales:
–16% 5%
–11% 13%
2016:
€5,569 million
Change:
–4%
2015: Fungicides
€5,820 million €2,384 million
Herbicides Change: Percentage of sales:
€2,161 million –5% 43%
Change: Percentage of sales:
1% 39%
Factors influencing sales Income from operations before special items
(million €)
Volumes (2%) 2016 1,087
Prices 0% 2015 1,090
Portfolio 0% Change:
Currencies (2%) minus €3 million
Sales (4%)
BASF Report 2016 Management’s Report 81
The BASF Group business year — Agricultural Solutions
How we create value – an example
Inscalis®
Innovative insecticide solution for use with numerous plants
Value for BASF Value for our customers and the environment
Peak sales Advantages compared with
>€100 million 3-fold
potential conventional insecticides
Inscalis® is an innovative solution of a new chemical class for Inscalis® offers a three-fold advantage compared with conven-
combating piercing and sucking pests. Inscalis® will play an tional insecticides. Effective in low doses, it is also character-
important role in BASF’s insecticide portfolio, and be used for ized by low toxicity for beneficial insects such as bees and an
various plants in numerous countries starting at the end of alternative mode of action for combating the most important
the decade. We expect peak sales potential of more than pests. For farmers, this means greater flexibility in application
€100 million. and higher yields with better quality.
Strategy
▪▪ Helping to feed a growing world population for improving seeds and innovations for better soil manage-
▪▪ Long-term innovation strategy ensures future growth ment, but also biological and chemical technologies that make
▪▪ Development of solutions that go beyond plants better able to withstand stress factors like heat, cold
conventional crop protection and nutrient deficiency.
We are intensifying our investment in growth markets and
Our strategy is based on long-term market trends. A key chal- continuing to expand our good position in our core markets.
lenge of the future will be to ensure sufficient food for a growing In collaboration with seed companies, we benefit from the
world population. This means that farmers around the world technological competence of our crop protection research. In
need to increase their yields – and yet the natural resources for addition, we work together with external partners to be able to
doing so, such as water and arable land, are limited. We see it offer the best solutions for our customers. With our own proj-
as our duty to provide farmers with professional support in ects, jointly with partners like John Deere and in collaboration
producing more – and more nutritious – food as efficiently as with farmers, we drive the development of integrated IT appli-
possible. cations for modern, sustainable agriculture. One example is
We are committed to the responsible treatment of our the Maglis® digital platform developed by BASF. Since its
products and the environment. We offer our customers a launch at the beginning of 2016, the BASF team has used
broad portfolio of integrated solutions and constantly invest in Maglis® to support farmers in collecting, interpreting and mon-
our development pipeline to create chemical and biological itoring a range of agricultural data. This enables them to opti-
innovations in crop protection. mize management and make better decisions in cultivating
Our research and development activities range from solu- and marketing crops.
tions for guarding plants against fungi, insects and weeds, to
seeds and soil management, to plant health. For example, the
Functional Crop Care business unit not only provides products
82 Management’s Report BASF Report 2016
The BASF Group business year — Agricultural Solutions
Products, customers and applications
Indications and sectors Applications Example products
Fungicides Protecting crops from harmful fungal infections; improving Boscalid, metiram, dimethomorph, Initium®, metrafenone,
plant health F 500®, Xemium®, AgCelence® (umbrella brand)
Herbicides Reducing competition from weeds for water and nutrients Kixor®, dicamba, pendimethalin, imazamox, topramezone,
Clearfield® herbicide tolerance system, dimethenamid-P
Insecticides Combating insect pests in agriculture and beyond, such as Fipronil, alpha-cypermethrin, chlorfenapyr, teflubenzuron,
in the fields of public health, professional pest control and Nealta®, Termidor® to guard against termite infestation,
landscape maintenance Interceptor® mosquito nets to protect against malaria
Functional Crop Care Products for plant health and increased yield potential that Vizura®, Limus®, Systiva®, Vault® HP, Nodulator® PRO,
go beyond traditional crop protection, such as biological Flo Rite®, Integral®, Serifel®
crop protection, seed treatments, polymers and colorants
Investments Plant biotechnology at BASF
In 2016, we invested €205 million in property, plant and equip- BASF’s activities in the field of plant biotechnology are part of
ment. Most of this investment amount is attributable to the the Bioscience Research technology platform. Research and
expansion of dicamba production capacity in Beaumont, development expenses, sales, earnings and all other data are
Texas. We also increased capacities for the fungicide
not included in the Agricultural Solutions segment; they are
Xemium® and enlarged a formulation plant for fungicides in reported in Other.
Tarragona, Spain. Furthermore, we are continuing to invest in With our network of research sites, we help farmers meet
innovative solutions that go beyond classic crop protection. the growing demand for increased agricultural productivity as
One example from the area of Functional Crop Care is our new well as better nutrition. As part of the regular review of our
research and development center for biological crop protec- portfolio, we focused our research activities in 2016 on proj-
tion and seed solutions in Limburgerhof, Germany, which ects with the highest business and technological potential.
combines expertise in chemical and biological solutions. In These projects included the development of crops character-
order to continue meeting the ongoing high demand for our ized by higher yields and stress resistance, herbicide tolerance,
innovative products in the future, we will invest around or resistance against certain diseases. Part of this realignment
€840 million in developing and expanding our infrastructure involved adapting our site structure in North America and
and in our production and formulation capacities for active Europe; around 350 of approximately 750 positions were cut.
ingredients between 2017 and 2021. Our product marketing takes place in part together with lead-
ing seed providers.
BASF Report 2016 Management’s Report 83
The BASF Group business year — Agricultural Solutions
Segment data (million €)
2016 2015 Change in %
Sales to third parties 5,569 5,820 (4)
Intersegmental transfers 33 28 18
Sales including intersegmental transfers 5,602 5,848 (4)
Income from operations before depreciation and amortization (EBITDA) 1,305 1,321 (1)
EBITDA margin % 23.4 22.7 –
Depreciation and amortization1 268 238 13
Income from operations (EBIT) 1,037 1,083 (4)
Special items (50) (7) .
EBIT before special items 1,087 1,090 0
EBIT after cost of capital 172 154 12
Assets 8,899 8,435 6
Investments2 266 402 (34)
Research and development expenses 489 514 (5)
1
Amortization of intangible assets and depreciation of property, plant and equipment (including impairments and write-ups)
2
Additions to intangible assets and property, plant and equipment (including acquisitions)
Agricultural Solutions segment At €549 million, sales in Asia exceeded the previous year’s
level by €24 million. We were able to raise sales volumes in all
▪▪ Lower volumes and currency effects lead to indications, largely driven by substantially higher demand for
4% decline in sales to €5,569 million herbicides in India and the overall positive volumes develop-
▪▪ At €1,087 million, EBIT before special items ment in Indonesia and Australia. Currency effects slightly
matches prior-year level dampened sales.
In South America, sales fell by €57 million to €1,261 mil-
In the Agricultural Solutions segment, sales to third parties in lion, basically due to lower insecticide volumes in Brazil. This
2016 fell by €251 million to €5,569 million as a result of lower was primarily attributable to our customers’ high inventory
sales volumes and negative currency effects. The challenging levels and critical economic situation, as well as the shrinking
market environment for crop protection products particularly market for insecticides in the region. Price increases were
dampened demand for insecticides in South America and unable to fully compensate for the drop in volumes.
for fungicides in Europe. Prices matched the level of 2015
(volumes −2%, prices 0%, currencies −2%). Strict cost management enabled us to reduce fixed costs in
In Europe, sales declined by €149 million to €1,958 mil- the Agricultural Solutions segment. Thanks to this develop-
lion. This was mainly attributable to weaker demand for fungi- ment, income from operations (EBIT) before special items
cides in the first half of the year. Especially in Germany and matched the previous year’s level at €1,087 million despite the
Poland, volumes fell as a result of unfavorable weather condi- sales decline. Due to special charges from the optimization of
tions and our customers’ high inventory levels. Price increases, our production structure, EBIT decreased by €46 million to
primarily in central and eastern Europe, including Russia, were €1,037 million.
unable to offset the lower volumes and negative currency For the Outlook for 2017, see page 122
effects.
Sales in North America decreased by €69 million to
Crop Protection – Sales by region
€1,801 million, predominantly because of lower prices, espe- (Location of customer)
cially for fungicides in the United States. Higher demand for 4
fungicides and insecticides in the United States and for herbi- 1 Europe 35% 1
cides in Canada helped support volumes development. 2 North America 32%
€5,569 million
3 Asia Pacific 10% 3
4 South America, Africa, Middle East 23%
2
84 Management’s Report BASF Report 2016
The BASF Group business year — Oil & Gas
Oil & Gas
BASF’s oil and gas activities are bundled in the Wintershall Group. We focus on exploration
and production in oil and gas-rich regions in Europe, North Africa, Russia, South America
and the Middle East – focus regions in which Wintershall has a high level of regional and
technological expertise. We are also active in the transport of natural gas in Europe with
our Russian partner Gazprom.
Sales
2015: 2016:
€12,998 million €2,768 million
Exploration & Production
€2,809 million
Change:
–79%
Natural Gas Trading
€10,189 million
Factors influencing sales Income from operations before special items
(million €)
Volumes 3% 2016 517
Prices/currencies (3%) 2015 1,366
Portfolio (79%) Change:
Sales (79%) minus €849 million
BASF Report 2016 Management’s Report 85
The BASF Group business year — Oil & Gas
How we create value – an example
Optimized oil treatment and storage
Reconstruction and process optimization of tank farm in Barnstorf
Value for BASF Value for the environment
Reduction of Reduction of annual
25% 95%
investment costs energy demand
around around
An innovative construction concept enabled us to save around The new, optimized tanks are especially safe and do not
25% in investment costs while reconstructing our tank farm in require large concrete containment systems underneath.
Barnstorf, Germany. Typical construction methods would have Instead, the oil tanks feature an accessible annular gap, while
meant replacing the previous twelve crude oil and water tanks the water tanks are constructed with vacuum-monitored
with five new ones, and building individual facilities for separat- double walls. This increases their energy efficiency: Thanks to
ing the oil from associated substances and storing it. Because the thermally insulating air layer in the annular gap and the
our new tanks allow both at the same time, four new tanks especially well insulated double floor, the amount of energy
were sufficient. These can be employed more flexibly and needed to heat the oil tanks has been reduced by around 95%
economically and ensure lower maintenance costs. over the course of a year.
Strategy
▪▪ Growth through exploration, acquisitions, strategic Handling hydrocarbons in a responsible manner demands
partnerships and technological expertise special measures for the protection of people and the environ-
▪▪ Contribution to securing Europe’s natural gas supply ment. We therefore carefully assess the potential effects of
every project before we begin. Together with experts, contrac-
In the future, crude oil and natural gas will continue to contrib- tors and relevant stakeholders, we develop methods and carry
ute significantly toward covering the rising energy demand of a out measures for using resources even more efficiently and
growing world population. That is why we invest in the explo- minimizing impact on the environment. This includes acting in
ration and production of oil and gas, primarily in our core accordance with international agreements, legal requirements
regions Europe, North Africa, Russia and South America. We and our own, self-imposed high standards.
want to establish the Middle East as another core region in our Wintershall’s natural gas trading and storage activities
portfolio. were transferred to Gazprom with the swap of assets of equal
Selected collaborations and strategic partnerships, inno- value completed in September 2015, and are no longer part of
vative technologies and the responsible development and our portfolio. Our cooperation with Gazprom in the natural gas
production of hydrocarbons all form the basis of our transport business continues unaltered. With western Europe’s
growth-oriented strategy. Through the continuous optimiza- long-term demand for natural gas steadily on the rise, while its
tion of our cost structure and portfolio of oil and gas activities, local production simultaneously decreases, securing sufficient
we ensure our future competitive viability, even in times when imports is gaining in importance.
oil and gas prices are low. Measured by production volumes,
gas activities comprised around 70% of our portfolio.
86 Management’s Report BASF Report 2016
The BASF Group business year — Oil & Gas
Exploration & Production Russia: The Yuzhno Russkoye natural gas field in western
Siberia, in which we have a 35% economic interest, has been
▪▪ Active portfolio management, including expansion of operating at plateau production since 2009. We hold a 50%
our position in Norway stake in the development of Block IA of the Achimov formation
in the Urengoy field in western Siberia. The gradual develop-
Europe: The Mittelplate field off the North Sea coast is the ment of this field was continued and 78 wells were producing
cornerstone of our crude oil production in Germany. We own at the end of 2016. We will develop blocks IV and V of the
a 50% share in the next development phase of this largest Achimov formation together with Gazprom.
known oil deposit in the country. We are expanding production North Africa / Middle East: In Libya, we are the operator
in Emlichheim by drilling twelve new wells, two of which s tarted of eight oilfields in the onshore concessions 96 and 97. Due to
producing between September and December 2016. Winters difficult political conditions, we were only able to start produc-
hall is assessing a redevelopment of the Suderbruch oilfield ing in concession 96 again on September 16, 2016, at a low
with two exploration wells. We continued the field test for level of 35,000 BOE a day. No production took place in con-
increasing recovery rates using the biopolymer Schizophyllan cession 97 in 2016. At the Al Jurf oilfield off the coast of Libya,
at the Bockstedt oilfield. in which we have a stake, operations could be continued
In Norway, we were able to expand annual production to without interruption.
80,000 barrels of oil equivalent (BOE) per day. The further In Abu Dhabi, we began drilling our second appraisal well
development of fields in which we hold a stake included the as operator in the development of the Shuwaihat sour gas field
installation of two subsea tiebacks in the Norwegian Sea for in November 2016. It is Wintershall’s first offshore exploration
the Wintershall-operated Maria field in the summer of 2016. well in the Shuwaihat field.
These were connected at a depth of 300 meters to the nearby Wintershall signed a memorandum of understanding in
platforms Kristin, Heidrun and Åsgard B, enabling us to use April 2016 with the National Iranian Oil Company on a potential
the existing infrastructure for production in the Maria field, in collaboration.
which Wintershall holds a 50% share. Wintershall also has South America: We hold shares in a total of fifteen onshore
shares in the Ivar Aasen offshore platform installed and started and offshore fields in Argentina. In February 2016, the offshore
up in 2016. In January 2016, Wintershall obtained shares in field Vega Pléyade, operated by Total Austral S.A., began
seven new exploration licenses on the Norwegian continental production off the coast of Tierra del Fuego. We drilled addi-
shelf from the Norwegian Ministry of Petroleum and Energy. tional wells as an operator in the Vaca Muerta shale formation
Wintershall will take over operatorship of four licenses. in the Neuquén province, as stipulated in the joint operation
As part of ongoing portfolio optimization, Wintershall agreement between Wintershall Energía S.A. (Buenos Aires,
Norge AS agreed with Statoil Petroleum AS (both based in Argentina) and Gas y Petróleo del Neuquén S.A. (Neuquén,
Stavanger, Norway) on the sale of its 25% share in the Byrding Argentina).
field on the Norwegian continental shelf. The field, For information on current reserves, see pages 88 and 223
also known by its previous name, Astero, was discovered in
2005 and is located in the Troll/Fram region of the North Sea.
Wintershall Norge furthermore divested its 10% share in the
Yme license – also on the Norwegian continental shelf – to
OKEA AS, an oil company based in Trondheim, Norway.
In Denmark, we are continuing the transition from the
development to the production phase of the Ravn field. The
crude oil is to be transported through a subsea pipeline
from an unmanned production platform to the A6-A platform
18 kilometers away in the German North Sea. Ravn will be the
first field in Denmark that Wintershall Noordzee B.V. (Rijswijk,
Norway) transfers to the production phase as operator. The
Danish energy ministry granted Wintershall three new licenses
in the Danish North Sea at the beginning of 2016. Wintershall
is the operator in all three licenses.
BASF Report 2016 Management’s Report 87
The BASF Group business year — Oil & Gas
Capital expenditures
Plateau/peak production
Location Project per year1 Startup
Argentina Development of Vega-Pléyade field 9 million BOE 2016
North Sea, Norway Development of Maria field 7 million BOE 2018
Development of Edvard Grieg field 5 million BOE 2015/20182
Development of Aasta Hansteen field 12 million BOE 2018
Siberia, Russia Achimgaz, development of Achimov horizon in Urengoy natural
gas and condensate field 43 million BOE 2008/20202
1
BASF’s share in barrels of oil equivalent (BOE)
2
Year completed
Natural Gas Transport We hold a 15.5% share in the Nord Stream Pipeline through
Nord Stream AG, based in Zug, Switzerland, which is
▪▪ Mostly regulated business with stable conditions accounted for in the BASF Group’s financial statements using
▪▪ Joint activities with Gazprom the equity method. Other shareholders are Gazprom (51%)
and E.ON (15.5%), as well as N.V. Nederlandse Gasunie and
The highly regulated natural gas transport sector is character- ENGIE (9% each). With a total capacity of 55 billion cubic
ized by stable conditions and yields based on approved costs meters of natural gas per year, this pipeline, which stretches
and tariffs. Our organizational structure allows us to meet the from Russia to the German coast over the Baltic Sea, helps
unbundling requirements set down by the German Energy Act: shore up supply security in Europe.
As a holding company for the German subsidiaries in natural The contracts signed in 2015 to join the companies
gas transport, WIGA Transport Beteiligungs-GmbH & Co. KG involved in the Nord Stream 2 AG were canceled in September
(WIGA) mainly fulfills a reporting and financing capacity. 2016 after withdrawal of the antitrust clearance application in
GASCADE Gastransport GmbH, OPAL Gastransport GmbH & Poland. BASF continues to firmly believe in the significance of
Co. KG, and NEL Gastransport GmbH all act as independent this project for Europe, and is evaluating possibilities to sup-
companies under the umbrella of the holding company. port the endeavor. The project is being developed by Nord
The companies under the WIGA umbrella operate a Stream 2 AG, a project company in which Gazprom holds
3,300-kilometer long-distance network that includes the pipe- 100% of the shares.
line links to the Nord Stream Pipeline, the Baltic Sea Pipeline
Link (OPAL) and the North European Gas Pipeline (NEL).
88 Management’s Report BASF Report 2016
The BASF Group business year — Oil & Gas
Segment data1 (million €)
2016 2015 Change in %
Sales to third parties 2,768 12,998 (79)
Intersegmental transfers 331 766 (57)
Sales including intersegmental transfers 3,099 13,764 (77)
Income from operations before depreciation and amortization (EBITDA) 1,596 2,587 (38)
EBITDA margin % 57.7 19.9 –
Depreciation and amortization2 1,097 1,515 (28)
Income from operations (EBIT) 499 1,072 (53)
Special items (18) (294) 94
EBIT before special items 517 1,366 (62)
EBIT after cost of capital (744) (443) (68)
Assets 12,829 12,373 4
Investments3 1,115 1,823 (39)
Research and development expenses 39 50 (22)
Exploration expenses 94 195 (52)
Net income4 362 1,050 (66)
1
Supplementary information on the Oil & Gas segment can be found from page 221 onward.
2
Amortization of intangible assets and depreciation of property, plant and equipment (including impairments and write-ups)
3
Additions to intangible assets and property, plant and equipment (including acquisitions)
4
More on this figure can be found in the reconciliation reporting for Oil & Gas in the Notes to the Consolidated Financial Statements on page 179.
Oil & Gas segment Income from operations (EBIT) before special items declined
by €849 million to €517 million in 2016. This was primarily the
▪▪ Sales decline by 79% and EBIT before special items result of falling oil and gas prices, in addition to the divestiture
down by 62% due to discontinuation of contributions of our gas trading and storage business to Gazprom. The
from gas trading and storage business as well as to activities transferred to Gazprom had contributed around
lower oil and gas prices €260 million to EBIT before special items in 2015. In addition,
as we had expected, the earnings contribution from our share
In the Oil & Gas segment, sales to third parties decreased by in the Yuzhno Russkoye natural gas field was lower: A
€10,230 million to €2,768 million year-on-year (volumes 3%, contractual agreement with our partner Gazprom stipulated
prices/currencies –3%, portfolio –79%). Owing to the asset that the excess amounts received over previous years be
swap with Gazprom completed at the end of September compensated in 2016. Positive effects came from compre-
2015, contributions from the natural gas trading and storage hensive measures aimed at optimizing exploration and tech-
business and from Wintershall Noordzee B.V. ceased as of nology projects as well as the successful implementation of
the fourth quarter of 2015. These activities had contributed operational cost-saving measures. EBIT declined by €573 mil-
€10.1 billion to sales in 2015. In the continuing oil and gas lion to €499 million. Net income declined by €688 million to
business, we raised volumes by 15% compared with 2015, €362 million.
while price and currency effects came out to minus 15%. The For the Outlook for 2017, see page 123
price of a barrel of Brent blend crude oil averaged $44 in 2016
(2015: $52). Gas prices on European spot markets dropped We increased our crude oil and natural gas production by
29%, also a sharp fall compared with the previous year. Both 12 million barrels of oil equivalent (BOE) to 165 million BOE.
oil and gas prices recovered significantly toward the end of In the search for new crude oil and natural gas deposits, we
2016 as compared with the beginning of the year. finished drilling a total of 14 exploration and appraisal wells in
2016, of which 9 were successful. Our proven crude oil and
natural gas reserves fell by 7% compared with the end of
Oil & Gas – Sales by region
(Location of customer)
2015, to 1,622 million BOE. We replenished 26% of the
4 volumes produced in 2016. The reserve-to-production ratio
1 Europe 80% is around 10 years (2015: 11 years). This is based on Winters
2 North America 0% hall’s production in 2016 and refers to the reserves at year-
€2,768 million
3 Asia Pacific 0% end.
4 South America, Africa, Middle East 20%
1
BASF Report 2016 Management’s Report 89
The BASF Group business year — Other
Other
Data for Other1 (million €)
2016 2015 Change in %
Sales 2,018 2,790 (28)
Income from operations before depreciation and amortization (EBITDA) (972) (866) (12)
Amortization and depreciation2 119 119 –
Income from operations (EBIT) (1,091) (985) (11)
Special items (41) (97) 58
EBIT before special items (1,050) (888) (18)
Assets3 9,374 9,632 (3)
Investments4 121 111 9
Research and development expenses 398 407 (2)
1
Information on the composition of Other can be found in the Notes to the Consolidated Financial Statements from page 178 onward.
2
Amortization of intangible assets and depreciation of property, plant and equipment (including impairments and write-ups)
3
Contains assets of businesses recognized under Other as well as reconciliation to assets of the BASF Group
4
Additions to intangible assets and property, plant and equipment (including acquisitions)
Sales in Other fell by €772 million to €2,018 million compared Income from operations before special items in Other declined
with 2015. Lower prices and volumes in the raw materials by €162 million to minus €1,050 million. This was largely
trading business were primarily responsible, along with the attributable to valuation effects for our long-term incentive
expiration of supply contracts in connection with the disposal program. Positive currency effects helped slow the decline.
of our share in the Ellba Eastern Private Ltd. joint operation in
Singapore at the end of 2014.
90 Management’s Report BASF Report 2016
The BASF Group business year — Regional results
Regional results
Regions (million €)
Sales Sales Income from operations
by location of company by location of customer by location of company1
Change Change Change
2016 2015 in % 2016 2015 in % 2016 2015 in %
Europe 27,221 38,675 (30) 26,039 36,897 (29) 3,632 4,174 (13)
Thereof Germany 17,540 28,229 (38) 7,412 13,483 (45) 1,582 2,303 (31)
North America 14,682 15,665 (6) 14,042 15,390 (9) 1,113 1,295 (14)
Asia Pacific 11,512 11,712 (2) 12,165 12,334 (1) 1,098 445 147
South America, Africa, Middle East 4,135 4,397 (6) 5,304 5,828 (9) 432 334 29
57,550 70,449 (18) 57,550 70,449 (18) 6,275 6,248 0
1
For purposes of increased clarity in the presentation of regional results, income from operations (EBIT) before special items was replaced by EBIT, a figure directly derivable from the
Consolidated Financial Statements, as of the second quarter of 2016. Neither EBIT before special items by region nor EBIT by region is drawn upon for internal management decisions.
Europe North America
▪▪ At €27,221 million, sales down by 30% compared ▪▪ Sales down 6% from the previous year to
with previous year €14,682 million
▪▪ Additional investments initiated at Ludwigshafen ▪▪ Ongoing investments in production plants,
Verbund site such as for ammonia and herbicides
In 2016, sales at companies headquartered in the region Sales at companies headquartered in North America were
Europe amounted to €27,221 million, 30% below the previous down by 6% compared with 2015 in both euro and local cur-
year’s level. This was mainly attributable to the considerable rency terms, amounting to €14,682 million. This was largely
decline in sales in the Oil & Gas segment following the disposal due to decreased sales prices brought about by lower raw
of our gas trading and storage business to Gazprom in Sep- material prices, especially in the Chemicals segment. Sales
tember 2015. volumes remained stable overall. Rising volumes in the Func-
Despite strong volumes growth, the Chemicals segment tional Materials & Solutions segment were able to offset the
posted a considerable drop in sales due to lower sales prices lower volumes in the Chemicals and Performance Products
brought about by decreased raw material prices. Sales in the segments.
Performance Products segment declined slightly, largely on EBIT fell 14% to €1,113 million compared with the previous
account of lower prices and the disposal of portions of our year. Significantly increased contributions from the Perfor-
pharmaceutical ingredients and services business. In the mance Products and Functional Materials & Solutions seg-
Functional Materials & Solutions segment, significantly higher ments were only partially able to compensate for the sales and
volumes were able to more than compensate for price margin-related earnings decline in the Chemicals segment.
declines, resulting in a sales increase. Despite increased sales In this region, we continue to focus on innovation, attrac-
prices, a combination of lower volumes and negative currency tive market segments and cross-business initiatives in order
effects resulted in a considerable drop in sales in the Agricul- to grow profitably. At the same time, we ares increasing our
tural Solutions segment. Sales declined considerably in Other. operational excellence through continuous improvement.
Income from operations (EBIT) fell by 13% year-on-year to Investments in new production facilities form the basis for
€3,632 million, primarily owing to the decrease in the Oil & Gas future growth. For example, we are building a new ammonia
segment. Contributions were also smaller from the Chemicals plant in Freeport, Texas, with Yara; expanding production
and Agricultural Solutions segments, as well as from Other. capacities for our dicamba and dimethenamid-P herbicides in
The Performance Products and Functional Materials & Solu- Beaumont, Texas; and modifying the plant in Pasadena, Tex-
tions segments, however, raised their EBIT. as, to produce our Palatinol® DOTP plasticizer so we can meet
We are strengthening our market position through further growing demand in North America. Beyond that, we aim to
investments at the Ludwigshafen Verbund site, such as the gradually expand the production capacity of MDI at our
replacement of our acetylene plant with a state-of-the-art,
Geismar, Louisiana, Verbund site.
highly efficient production facility, and the expansion of capac-
ities for resins.
BASF Report 2016 Management’s Report 91
The BASF Group business year — Regional results
Sales by region Income from operations by region
(Location of company) (Location of company)
5 5
1 1
1 Germany 30% 4
1 Germany 25% 4
2 Europe (excl. Germany) 17% 2 Europe (excl. Germany) 33%
3 North America 26% €57,550 million 3 North America 18% €6,275 million
4 Asia Pacific 20% 4 Asia Pacific 17%
3
5 South America, Africa, Middle East 7% 5 South America, Africa, Middle East 7%
3 2
2
Asia Pacific South America, Africa, Middle East
▪▪ Sales 2% below 2015 level at €11,512 million ▪▪ Sales down 6% to €4,135 million
▪▪ Local production expanded through new plants ▪▪ Production plant for 2-ethylhexyl acrylate
in China and Malaysia now in operation in Guaratinguetá, Brazil
At €11,512 million, sales at companies headquartered in the At €4,135 million, sales for companies headquartered in South
Asia Pacific region fell by 2% in 2016; in local currency terms, America, Africa, Middle East fell 6% below the level of 2015. In
sales matched the level of the previous year. local currency terms, sales were up by 2%.
Low oil and raw material prices weighed on sales, espe- Gross domestic product shrank in South America primarily
cially at the beginning of the year. While sales prices did sub- as a consequence of the continuing recession in Brazil as well
stantially recover over the year, they still showed an overall as the economic environment and structural reforms in Argen-
decline for 2016. Sales were also dampened by negative cur- tina. Our sales declined slightly under these conditions. Price
rency effects and portfolio measures such as the sale of the increases enabled us to partly offset negative currency e ffects,
textile chemicals business in June 2015, parts of our pharma- especially from the depreciation of the Argentinian peso, and
ceutical ingredients and services business in September 2015, weaker sales volumes. Sales declined in the chemicals1 and
and the polyolefin catalysts business in July 2016. Sales in crop protection businesses but rose in the Oil & Gas segment.
Other decreased considerably. Volumes growth of around 5% Companies in Africa and in the Middle East posted a con-
in this region was only partially able to offset these effects. We siderable sales decrease owing to currency effects and down-
raised sales volumes in all segments. ward pressure on prices. The drop in sales in South Africa was
EBIT in the region grew by 147% to €1,098 million. This primarily due to the depreciation of the rand; this particularly
was mainly due to higher volumes and margins in all segments. affected the Functional Materials & Solutions segment. In the
Through strict cost management, fixed costs rose only slightly Middle East, a slump in selling prices affected by falling raw
compared with the previous year, despite the startup of sever- material prices negatively impacted our business in the Perfor-
al new plants. mance Products and Functional Materials & Solutions seg-
As part of our regional strategy, we want to further increase ments.
the proportion of sales from local production in Asia Pacific in EBIT grew by 29% to €432 million, supported especially by
the years ahead. We once again made progress toward this the higher contribution from the chemicals business.
goal: In Korla, China, we started up a polytetra hydrofuran In South America in 2016, we continued implementing a
(PolyTHF®) plant with our partner Markor, and in Shanghai, series of structural measures that increase our productivity
China, we completed the modification of the poly vinyl and sharpen the focus on our customers’ needs. We have
pyrrolidone plant. In Kuantan, Malaysia, we and our partner expanded our production in Guaratinguetá, Brazil, with the
PETRONAS started up a production plant for 2-ethylhexanoic startup of a 2-ethylhexyl acrylate plant that will allow us to tap
acid and finished construction of the new aroma chemicals into the region’s growing demand.
complex. Further endeavors, such as catalyst production
plants in Caojing, China, and Rayong, Thailand, are currently
under construction and progressing on schedule.
1
Our chemicals business comprises the Chemicals, Performance Products and Functional Materials & Solutions segments.
92 Management’s Report BASF Report 2016
Responsibility along the value chain — Suppliers
Responsibility along the value chain
Suppliers
Suppliers Production Customers
Our objective is to secure competitive advantages for What we expect from our suppliers
BASF through professional procurement structures. Our
suppliers are an important element of our value chain. ▪▪ Global Supplier Code of Conduct
Together with them, we aim to create value and minimize ▪▪ Country-specific risk analysis forms basis of new
risks. supplier selection
Strategy Both new and existing suppliers are selected and evaluated
not only on the basis of economic criteria, but also on environ-
With our sustainability-oriented supply chain management, we mental, social and corporate governance standards. Our
contribute to risk management by clarifying our expectations Supplier Code of Conduct is founded on internationally recog-
and standards for our suppliers, and by supporting them in nized guidelines, such as the principles of the United Nations’
carrying out our specifications. We count on reliable supply Global Compact, the International Labor Organization (ILO)
relationships and want to make our suppliers’ contribution to conventions and the topic areas of the Responsible Care
sustainable development transparent. In order to achieve this, Initiative. The Code of Conduct covers compliance with human
we set ourselves an ambitious goal: By 2020, we aim to eval- rights, labor and social standards, and antidiscrimination and
uate the sustainability performance of 70% of the BASF anticorruption policies in addition to protecting the environ-
Group’s relevant suppliers1 pursuant to our risk-based ment. The Code is available in 26 languages.
approach and develop action plans for any necessary
A country-based risk analysis forms the basis of our selec-
improvements. The proportion of evaluated relevant suppliers tion process for new suppliers. As a result of the country-
was at 32% by the end of 2016. Furthermore, our P
rocurement related risks identified in South America and Asia, we queried
competence center supports BASF’s business units in devel- around 2,100 suppliers in 2016 on their commitment to the
oping solutions to stand out from the competition in address- values of our Supplier Code of Conduct. We moreover pro
ing customers’ market-specific requirements. vided training to a total of 267 suppliers with an elevated sus-
tainability risk, especially in Asia and South America, in 2016.
2020 Goal In addition, we instructed 292 procurement employees on
sustainability-oriented supplier management. These are ways
Percentage of relevant suppliers
70%
evaluated for their sustainability in which potential supply chain risks can be identified and
performance minimized together with our suppliers.
Worldwide procurement Evaluating our suppliers
From our suppliers, we obtain raw materials, technical goods, ▪▪ “Together for Sustainability” initiative aims to
and services – from technical to logistics and building facility harmonize and standardize supplier assessments
services. BASF acquired raw materials, goods and services for and audits
our own production totaling approximately €34 billion in value ▪▪ 104 raw material supplier sites audited
from more than 70,000 suppliers around the world in 2016.
Around 90% of this was locally sourced. With regard to our BASF is a founding member of the Together for Sustainability
suppliers, there were no substantial changes in our value chain (TfS) initiative of leading chemical companies for the global
in 2016. standardization of supplier evaluations and auditing. With the
help of TfS, we promote sustainability in the supply chain. The
initiative aims to develop and implement a global program for
the responsible supply of goods and services and improve
suppliers’ environmental and social standards. The evaluation
process is simplified for both suppliers and TfS member com-
panies by a globally uniform questionnaire. The initiative’s
members conducted a total of 1,773 sustainability assess-
ments and 241 audits in 2016. Membership has tripled since
the initiative was founded; there were 19 members in 2016.
1
We define relevant suppliers as those showing an elevated sustainability risk potential as identified by risk matrices and with respect to corresponding country risks. Our suppliers are
evaluated based on risk due to the size and scale of our supplier portfolio.
BASF Report 2016 Management’s Report 93
Responsibility along the value chain — Suppliers
We conducted a Supplier Day in Mumbai, India, in 2016 as Audit results
part of the TfS initiative. TfS also provided training to suppliers
at the annual China Petroleum and Chemical Industry Federa- Our audits have revealed some deviations with respect to
tion (CPCIF) Conference in Shanghai, China, in order to working hours and payment of the minimum wage, especially
strengthen awareness for sustainability in the region. in China. Here, we have called for improvements on the part of
Using TfS evaluations, we pursue a risk-oriented approach our suppliers. None of our 2016 audits identified instances of
with clearly defined, BASF-specific follow-up processes. We child labor. For the suppliers we reviewed, persons under 18
drive these processes through a sustainability-oriented IT tool. were excluded from overtime and dangerous work; we found
Suppliers with an elevated sustainability risk are identified one case of unauthorized night work. We did not find any inci-
using risk matrices. Furthermore, our purchasers indicate the dences of forced labor in 2016.
suppliers for whom they see a potentially elevated sustainabil- In August 2012, during an extended mining strike involving
ity risk. We additionally check various information sources to workers of the London-based platinum supplier Lonmin Plc in
see if any suppliers have been observed in connection with Marikana, South Africa, the conflict escalated and culminated
negative sustainability incidents. Based on these analyses, we in a violent confrontation between mine workers and armed
audited a total of 104 raw material supplier sites on sustain- South African police. Lonmin mine workers were among the
ability standards and had 551 sustainability assessments fatalities. In June 2015, the Farlam Report commissioned by
conducted by an external service provider in 2016. the South African government was released on the incidents.1
If we identify potential for improvement, we support suppli- BASF undertook a thorough examination of the issues
ers in developing measures to fulfill our standards. We conduct raised. We intensified our regular exchange with both Lonmin
another review according to a defined timeframe based on the and with local stakeholders, such as leading industry and
sustainability risk measured. If the weak points discovered human rights representatives. Discussions included Lonmin’s
were particularly severe and we are unable to confirm any measures for improving the living conditions of its workers.
improvement, we reserve the right to terminate the business At the end of 2015, BASF had an Environment, Social,
relationship. This occurred in two cases in 2016. We use this Governance audit conducted at Lonmin by an internationally
approach to evaluate suppliers with an elevated sustainability recognized audit firm, in accordance with enhanced TfS
risk at least every five years. The approach itself is reviewed requirements. In the process, deficits were detected in areas
every two years to identify possibilities for optimization. such as the grievance process for workers and residents, as
For more on “Together for Sustainability,” see well as safety and security. Based on the results, BASF
basf.com/en/together-for-sustainability
enhanced the questionnaire and expanded it with a view to
industry-specific challenges in the mining sector. A follow-up
Supplier training audit conducted in January 2017 is currently being evaluated.
We will use our sphere of influence within the platinum value
In 2016, we continued our collaborations in China and Brazil to chain to create awareness for industry-specific challenges and
instruct suppliers on sustainability standards. We have devel- develop approaches for solutions together.
oped a training program for China together with the East China For more on suppliers, see basf.com/suppliers
University of Science and Technology in Shanghai. In Brazil,
we are pursuing the same approach together with the Espaço
Eco® Foundation. Through these cooperations, 267 suppliers
received training in 2016.
1
The Farlam Report found that the actions of the South African police forces and the striking miners were the primary cause of the violence. The Report also questioned whether
Lonmin had used its best endeavors to prevent the incident.
94 Management’s Report BASF Report 2016
Responsibility along the value chain — Raw materials
Raw materials
Suppliers Production Customers
Responsible resource management is an integral part of dispersions, plastics such as polyamides and polyurethanes,
our strategy. It is applied within the company through our and for intermediates available on the market as “drop-in
Verbund concept, our innovative products and the use of products.” These can be used in place of previously employed
renewable raw materials. In the search for alternative raw products in the production process without having to change
materials, we employ solutions that contribute to sustain- the process itself.
ability. Together with Avantium, BASF established the Amsterdam-
based Synvina C.V. joint venture in 2016 to produce and
Strategy market furandicarboxylic acid (FDCA) from renewable
resources. FDCA is a key chemical component of poly
The Verbund system is an important component of our ethylenefuranoate (PEF), which will also be marketed by the
resource efficiency strategy: The by-products of one plant
joint venture. PEF has a broad application profile and is espe-
often serve as feedstock elsewhere, thus helping us to use cially suitable for producing certain food packaging materials,
raw materials more efficiently. In 2016, BASF purchased a such as films and plastic bottles. Compared with conventional
total of around 30,000 different raw materials from more than plastics, PEF demonstrates higher barrier properties for gases
6,000 suppliers. Some of our most important raw materials like carbon dioxide and oxygen, leading to a longer shelf life for
are naphtha, natural gas, methanol, ammonia and benzene. In packaged products. In addition, its higher degree of mechani-
addition to fossil resources, we also employ renewable raw cal strength allows for thinner – and therefore lighter – packag-
materials. We use these to manufacture products that either ing. We also offer our customers 1,4-butanediol (BDO) on a
cannot be made with fossil resources, or only at significantly commercial scale using sugars as a renewable feedstock,
greater expense. Renewable raw materials also give us the based on a licensing agreement with the company Genomati-
opportunity to expand our raw material basis. Depending on ca Inc., headquartered in San Diego, California. We use BDO
the application, the better solution can be fossil or renewable to produce bio-based polytetrahydrofuran 1000 (PolyTHF®
raw materials; renewable raw materials are not per se sustain- 1000), which primarily serves as a chemical component in
able, but can contribute to sustainability by, for example, thermoplastic polyurethane (TPU), an ingredient used to
reducing greenhouse gas emissions. manufacture skis and roller skates, shoe soles, dashboard
films in the automotive industry, and other products.
Renewable resources Palm oil, palm kernel oil, and their derivatives are some of
our most important renewable raw materials. We want to
▪▪ Joint venture with Avantium ensure that the raw materials stem from sustainable, certified
▪▪ Numerous projects to improve sustainability along sources and actively support the Roundtable on Sustainable
the value chain Palm Oil (RSPO). Based on the voluntary commitment to sus-
tainably source palm oil products that we expanded in 2015,
In 2016, around 5.4% of the raw materials we purchased we increased our purchase of certified palm kernel oil by
worldwide were from renewable resources. To make the use of around 32,000 metric tons to 158,000 metric tons in 2016. In
these materials more competitive, we work on product inno addition, our new BASF Palm Sourcing Policy addresses the
vations based on renewable raw materials as well as on requirements for protecting and preserving forests and peat-
enhancing production processes in reaction technology and land, along with the involvement of local communities in deci-
preparation. sion-making processes, and we began its implementation
We also further established our “biomass balance” together with our suppliers in 2016.
approach on the market in 2016. The goal here is to replace We have intensified our dialog with partners along the
natural gas and naphtha at the beginning of the value chain value chain. In order to involve smallholder farmers and
with biogas and bio-naphtha from certified sustainable pro- improve their living conditions, BASF and Henkel are working
duction. Should a customer select a biomass-balanced prod- together with the development organization Solidaridad to
uct, the proportion of renewable feedstock to be used is cal- provide training for around 5,500 farmers in Indonesia. BASF
culated based on the formulation. The calculation is certified also advanced the RSPO certification of its sites for cosmetic
by an independent third party (TÜV Süd). Our Verbund pro- ingredients. In 2016, 19 production sites worldwide were
duction ensures that the properties and quality of all end already RSPO certified. Our goal is to only source palm oil and
products remain unchanged and that our customers can use palm kernel oil with RSPO certification, provided it is available
them as usual. This method has already been applied for more on the market. This voluntary commitment has been e xpanded
than 40 BASF products – for example, for superabsorbents, to include the most important intermediate products based
BASF Report 2016 Management’s Report 95
Responsibility along the value chain — Raw materials
on palm oil and palm kernel oil up to 2025; these include
fractions and primary oleochemical derivatives as well as edi-
ble oil e
sters.
We successfully completed our joint project with Cargill
and the German governmental agency for international coop-
eration (Gesellschaft für Internationale Zusammenarbeit, or
GIZ) on the sustainable production of coconut oil in the Philip-
pines in 2015. Since then, small-holder farmers have been
producing the world’s first Rainforest Alliance-certified dried
coconut meat (copra), from which the oil is extracted. In a
follow-up project, BASF is working together with Cargill, Proc-
tor & Gamble and the GIZ to support the expansion of a certi-
fied and transparent supply chain for coconut oil in the Philip-
pines and Indonesia. The project is being financed in part by
the “develoPPP.de” program of the German Federal Ministry
for Economic Cooperation and Development (BMZ). The proj-
ect is also expected to result in improved income and living
standards for around 3,600 small farmers.
BASF signed a contract in 2016 together with Arkema and
Jayant Agro, along with the non-governmental organization
Solidaridad, to promote sustainability in the castor oil supply
chain. With the Sustainable Castor Initiative – Pragati, the
project members want to improve the livelihood of castor oil
farmers and their employees in India by helping them optimize
their yield and reduce the impact on the environment. Further-
more, a sustainability code is being developed that will enable
Indian farmers to offer the first certified sustainable castor oil
on the global market. The project is initially scheduled to run
for three years.
For more on the Biomass Balance Approach, see page 62
For more on palm (kernel) oil, see page 68
For more on our voluntary commitment to palm oil products, see
basf.com/en/palm-dialog
Mineral raw materials
We procure a number of mineral raw materials, like precious
metals, that we use to produce process and mobile emissions
catalysts. In suspected cases, we track the origins of minerals –
as defined in the Dodd-Frank Act – to see if they come from
mines in conflict regions. We reserve the right to conduct an
external audit and, if necessary, terminate our business relation-
ship. The suppliers addressed have confirmed to us that they do
not source minerals matching this definition of conflict minerals
from the Democratic Republic of the Congo or its neighboring
countries.
BASF is observing the current development of a European
regulation on conflict minerals that creates obligations for import-
ers and processors of mineral raw materials originating from
conflict regions.
96 Management’s Report BASF Report 2016
Responsibility along the value chain — Environment, health, safety and security — Responsible Care Management System
Environment, health, safety and security
Responsible Care Management System
Suppliers Production Customers
We act responsibly as an integral part of society and have Audits
set out the framework for our voluntary commitments in
our Responsible Care Management System. We never ▪▪ 121 safety, security, health and environmental
compromise on the safety and security of our employees, protection audits performed at 80 sites
contractors and neighbors as well as our facilities, trans-
portation and products, and the environment. Regular audits help ensure that standards are met for safety,
security, health and environmental protection. We conduct
Strategy audits at BASF sites and at companies in which BASF is a
majority shareholder. We have defined our regulations for
▪▪ Worldwide safety initiatives foster awareness of Responsible Care audits in a global Group requirement. During
workplace safety our audits, we create a safety and environmental profile that
▪▪ Ambitious goals for safety, security, health and shows if we are properly addressing the existing hazard poten-
environmental protection tial. If this is not the case, we agree on measures and conduct
follow-up audits on their implementation.
BASF’s Responsible Care Management System comprises the Our internal audit system complies with the standards for
global rules, standards and procedures for safety, security, external auditing procedures ISO 19011 and OHSAS 18001.
health and environmental protection for the various stations Worldwide, 155 BASF production sites are certified in accor-
along our value chain. Our regulations cover the transportation of dance with ISO 14001 (2015: 180)1. In the BASF Group in
raw materials, activities at our sites and warehouses, and distri- 2016, 121 environmental, safety and security audits were
bution of our products as well as our customers’ application of carried out at 80 sites, along with 37 short-notice audits on
the products. Specifications for implementing these measures various topics at 33 sites. We audited 30 sites with respect to
are laid out in binding directives that are introduced in consulta- occupational medicine and health protection.
tion with employee representatives. These describe the relevant For more on occupational safety and health protection, see page 98 onward
responsibilities, requirements and assessment methods. At our
sites, we cover energy and climate protection through, for exam-
ple, our energy management. Costs and provisions for environmental protection in the
We regularly conduct audits to monitor our performance and BASF Group (million €)
progress. We use the findings from these audits for continual
2016 2015
improvement.
Operating costs for environmental protection 1,011 962
We set ourselves ambitious goals for safety, security, health
and environmental protection. Our policies and requirements are Investments in new and improved
environmental protection plants and facilities2 206 346
constantly updated.
Provisions for environmental protection
We assess the potential risks and weak points of all our acti measures and remediation3 588 538
vities – from research to production and logistics – and the 2
Investments comprise end-of-pipe measures as well as integrated environmental
effects of these on the safety and security of our employees, the protection measures.
environment or our surroundings. In our databases, we docu- 3
Values shown refer to December 31 of the respective year.
ment accidents, near misses and safety-related incidents at our
sites as well as along our transportation routes; appropriate
measures are derived according to specific cause analyses. We
foster awareness of workplace safety in every individual with our
worldwide safety initiatives.
For more on Responsible Care, see basf.com/en/responsible-care
1
In addition to changes in the site portfolio, the decrease mainly resulted from the sites’ aim to be certified in accordance with ISO 50001 due to our energy efficiency goal.
BASF Report 2016 Management’s Report 97
Responsibility along the value chain — Environment, health, safety and security — Transportation and storage
Transportation and storage
Suppliers Production Customers
Our regulations and measures for transportation and ware- We broadened the training opportunities for our employees
house safety cover the delivery of raw materials, the storage and added new e-learning modules, such as the introduction
and distribution of chemical products among BASF sites of a multilingual training module in Europe on the road trans-
and customers, and the transportation of waste from our portation of hazardous goods.
sites to the disposal facilities. We stipulate worldwide requirements for our logistics ser-
vice providers and assess them in terms of safety and quality.
Strategy In 2016, we evaluated around 370 companies in all regions.
Our experts use our own evaluation and monitoring tools as
In 2014, we had already nearly achieved the BASF Group goal well as internationally approved schemes.
of reducing the number of worldwide transportation accidents We added container barges to our existing inspection
per 10,000 shipments by 70% from 2003 to 2020. Therefore, program in 2016. This includes not only evaluating the vessels
in our reporting on transportation incidents, we have focused themselves, but also the management systems of the shipping
since 2015 on dangerous goods spillages that significantly companies to review their safety standards.
impacted the environment. We report on dangerous goods We regularly evaluate the risks in transporting raw materials
leaks of BASF products in excess of 200 kilograms on public with high hazard potential using our global guideline. It is based
transportation routes, provided BASF arranged the transport. on the guidelines of the European Chemical Industry Council,
CEFIC.
Transportation incidents
Activities in external networks
We recorded two incidents in 2016 with spillage of more than
200 kilograms of dangerous goods (2015: 2). None of these We are actively involved in external networks, which quickly
transportation incidents had a significant impact on the envi- provide information and assistance in emergencies. These
ronment (2015: 0). include the International Chemical Environmental (ICE) initiative
and the German Transport Accident Information and Emer-
Accident prevention and emergency response gency Response System (TUIS), in which BASF plays a coor-
dinating role. In 2016, we provided assistance to other com-
▪▪ Dangerous goods inspections expanded in contract panies in 176 cases worldwide. We apply the experience
management system we have gathered to set up similar systems in other countries:
▪▪ Inspection program introduced for container barges For example, we intensified our activities in South America
in 2016.
In order to ensure that our processes are even safer and create For more, see basf.com/distribution_safety and
basf.com/emergency_response
globally uniform standards, we introduced extended danger-
ous goods checks into our order management system in
2016.
98 Management’s Report BASF Report 2016
Responsibility along the value chain — Environment, health, safety and security — Production
Production
Suppliers Production Customers
We never compromise on safety. For occupational and diverse safety and security topics at our training center. The
process safety as well as health and environmental pro- training center was opened as part of our 2010 safety initia-
tection and corporate security, we rely on comprehensive tive; more than 19,000 participants received training there in
preventive measures as well as on the involvement of all 2016.
employees and contractors. Our global safety and secu- For more on the global safety initiative, see
basf.com/global-safety-initiative
rity concepts serve to protect our employees, contractors
and neighbors as well as to prevent property damage and
protect information and company assets. In this way, we Occupational safety
help prevent injury, production outages and environmen-
tal damage. ▪▪ Employees and contractors worldwide instructed
on safe behavior
Strategy ▪▪ Fire at North Harbor in Ludwigshafen
▪▪ Global safety standards We have made it our goal to reduce the worldwide lost-time
▪▪ Strengthening risk awareness injury rate per one million working hours to 0.5 at most by
2025. To this end, we promote risk-conscious behavior and
We have set ourselves ambitious goals for occupational and safe working practices for every individual, particularly through
process safety as well as health protection. We stipulate regular communication, systematic risk assessments, specific
globally mandatory standards for safety, security and health qualification measures and our worldwide safety initiatives.
protection. A worldwide network of experts supports us in We recorded around 118,000 enrollments in occupational
their implementation. Tried-and-true processes and solutions safety training courses worldwide in 2016. These seminars
are documented and made globally available through net- comprise not only legally stipulated instructions, but also
works and structured exchange. We regularly conduct audits courses on safe procedures to strengthen our employees’
on safety, security, health and environmental protection in risk-aware behavior and prevent work-related accidents.
order to monitor progress toward our goals. Risk-conscious
working behavior is promoted for every individual through 2025 Goal
measures like systematic hazard assessments, specific quali-
Reduction of worldwide lost-time
≤0.5
fication measures and global safety initiatives. Based on our injury rate
corporate values, leaders serve as safety role models for our per one million working hours
employees. Together, they contribute to the constant develop-
ment of our safety culture.
In 2016, 1.4 work-related accidents per one million working
Global safety initiative hours occurred at BASF sites worldwide (2015: 1.4), raising the
rate of chemical-related accidents to 9% (2015: 8%). The rate
▪▪ Process safety and information protection of work-related accidents per one million working hours for
at Global Safety Days contractors was at 1.5 in 2016 (2015: 1.41). Unfortunately,
there were four incidents in 2016 with a total of seven fatalities
With our global safety initiative begun in 2008, we have creat- (2015: two fatal work-related accidents). BASF is performing a
ed the conditions necessary for the continuous development comprehensive analysis of the incidents and using the findings
of a safety culture. Process safety and information protection to derive appropriate measures.
were the main theme of our 2016 Global Safety Days, carried During maintenance work in Camaçari, Brazil, an employee
out in more than 860 activities at around 350 sites. Topics of a crane company suffered fatal injuries when the crane he
included product spillage prevention; reducing environmental, was operating tipped over. In May, an employee of an external
health and safety hazard potential; and proper conduct in company hired by BASF to perform maintenance work in
handling sensitive information. More than 75,000 employees Yeosu, South Korea, died from the effects of phosgene expo-
and contractors around the world took active part. This com- sure. The cause of the accident was investigated by BASF and
mitment and vigorous exchange make a major contribution to the relevant Korean authorities. In February 2017, the court
our safety culture. At the Ludwigshafen site, employees and responsible for the case ruled that the accident was attribut-
contractors can obtain continuous further education on able to carelessness on the part of individual employees.
1
The 2015 figure was adjusted to reflect a revised hour-counting method for contractors in Asia.
BASF Report 2016 Management’s Report 99
Responsibility along the value chain — Environment, health, safety and security — Production
Although the court did not identify any technical or process With an HPI of 0.96, we were once again able to fulfill the
defects, a small monetary penalty was nevertheless imposed ambitious goal of exceeding 0.9 each year (2015: 0.97). Our
on BASF. After the accident, BASF reviewed the safety mea- 2016 global health campaign for employees centered on heart
sures and processes at all of its isocyanate production sites attack and stroke prevention. To obtain a self-evaluation of
worldwide and once again clarified these to employees. An their heart’s age and their risk of heart attack and stroke, our
employee of a subcontractor succumbed to his injuries after employees filled out around 32,000 questionnaires worldwide.
falling through a roof opening in Kuan Yin, Taiwan, in July. The offer included personal recommendations for individual
In October, three employees of the BASF fire department risk factors and contact with a physician in the case of
lost their lives in an accident at the North Harbor of the Lud- increased risk.
wigshafen site, along with one barge crewman on a tanker
moored in the harbor. BASF had contracted a specialist com- Annual goal
pany for pipeline construction to perform scheduled preventive
Health protection
>0.9
maintenance on an emptied and secured propylene line at the Health Performance Index
North Harbor. Several pipeline sections were to be replaced. A Maximum score 1.0
fire broke out during the work, leading to an explosion and
ensuing fires in other pipelines. Six of the severely injured were
discharged from the hospital in December; another was kept Our 2017 global health campaign will focus on the lungs and
in the hospital for inpatient treatment. Light injuries were sus- respiratory system. We raise employee awareness of these
tained by 22 people in the accident. The district attorney’s topics through offers tailored toward specific target groups.
office of the city of Frankenthal is investigating the accident. The BASF health checks form the foundation of our global
BASF is supporting assessors and authorities in their inspec- health promotion program and are offered to employees at
tions and has also hired an independent expert to analyze the regular intervals.
causes of the accident. For more on occupational medicine, health promotion campaigns and
the HPI, see basf.com/health
For more on the fire in Ludwigshafen, see basf.de/fire-northharbor
For more on occupational safety, see basf.com/occupational_safety
Process safety
Lost-time injury rate per one million working hours
2002 2011 2012 2013 2014 2015 2016 2025 Goal ▪▪ Expanded initiative for reducing process safety
incidents
0.5 ▪▪ Enhanced training methods
1.4 1.5 1.4 1.4
1.7
1.9 We use the number of process safety incidents as a key per-
formance indicator, following to a large extent the definition set
3.3 by the European Chemical Industry Council (CEFIC). In 2016,
we recorded 2.0 process safety incidents per one million
Health protection working hours worldwide (2015: 2.1). We pursue continual
improvement by investigating every incident in detail, analyzing
▪▪ Focus in 2016: heart attack and stroke prevention root causes and using the findings to derive suitable measures.
▪▪ Global standards for occupational medicine and We set ourselves the goal of reducing process safety incidents
health protection to a rate of no more than 0.5 per one million working hours by
2025.
Our worldwide standards for occupational medicine and health
protection are specified in a directive that is implemented by a 2025 Goal
global network of experts. Our global health management
Reduction of worldwide process
≤0.5
serves to promote and maintain the health and productivity of safety incidents
our employees. This was supported by numerous emergency per one million working hours
drills and health promotion measures in 2016.
We measure our performance in health protection using
the Health Performance Index (HPI). The HPI comprises five To this end, we continued our worldwide initiative focusing on
components: confirmed occupational diseases, medical plant maintenance, repair and operation. This initiative pro-
emergency drills, first aid, preventive medicine and health duced a catalog of successful practices for preventing process
promotion. Each component contributes a maximum of 0.2 to safety incidents that has been available in several languages to
the total score. The highest possible score is 1.0. Our goal is all production plants worldwide since 2016.
to reach a value of more than 0.9 every year.
100 Management’s Report BASF Report 2016
Responsibility along the value chain — Environment, health, safety and security — Production
Our globally implemented management system for process We have been using the KATWARN system at the Ludwigs
safety provides the framework for the safe construction and hafen site since 2015, an app-based warning system that
operation of our plants as well as the protection of people and serves as an additional information channel to quickly inform
the environment. Our experts have developed a protection site employees and neighbors of dangerous situations. We are
plan for every plant that considers the key aspects of safety, constantly improving its use.
health and environmental protection – from conception to We developed a global qualification program in 2016 to
startup – and stipulates specific protection measures for each. train our emergency response teams. All over the world, men-
We continued to review this management system in all regions tors from the BASF SE fire department support local emer
in 2016. gency response instructors at the sites with their knowledge,
In order to maintain the highest level of safety at our plants contributing to safety.
across their entire life cycle, we review the implementation of For more on emergency response, see basf.com/emergency_response
our protection plans in all facilities at regular intervals and
depending on hazard potential. We use globally standardized Corporate security
software to track these safety assessments. One module of
this program – already used in many of our plants – checks ▪▪ Worldwide network of information protection officers
the timely implementation of stipulated measures, supporting
our employees in production. We supplemented this in 2016 We protect our employees, sites and company know-how
by updating a global recommendation for prioritizing safety against third-party interference, and establish the necessary
measures. framework worldwide with our uniform concepts. Audits
To strengthen risk awareness, we enhanced our training enable us to check the implementation of these measures.
methods, introduced global recommendations for training New online training courses are available to our employees
measures and instructed around 13,000 course participants. to prepare them for travel. Business travelers, transferees, and
For more on process safety, see basf.com/process_safety employees in countries with elevated security risks are
informed about appropriate protection measures and individu-
Emergency response ally counseled where necessary. After any major incident, we
now have the possibility of more quickly and accurately locat-
▪▪ Regular review of emergency systems ing employees in the affected regions through a travel research
▪▪ Global qualification program for emergency system that was globally standardized in 2016.
response teams Aspects of human rights related to site security, such as
the right to liberty and security of person, are a component of
In order to ensure uniformly high standards around the world the global qualification requirements of our security personnel.
for safety, security, health and environmental protection, we Respect for human rights is a mandatory element of any con-
continued to implement our requirements for emergency tract with service providers of the BASF Group who are active
response planning and fire prevention in the BASF Group in in this area. Our investment projects include performing com-
2016. We work, for example, with site-specific emergency prehensive analyses of potential risks. In 2016, we standard-
response plans and actively involve situation-related partners ized the use of security services at further European sites in
and suppliers as well as cities, communities and neighboring order to increase effectiveness and efficiency.
companies. Due to the increasing risks associated with the use of infor-
We regularly check our emergency systems and drill pro- mation technology, a global campaign for employees is draw-
cedures with employees, contractors and local authorities. ing attention to how we can even better protect our company
Through 173 drills and simulations in 2016, we instructed knowledge. For example, a global phishing simulation further
participants in our emergency response measures. One topic, strengthened our employees’ awareness of risks. Our world-
for example, revolved around collaboration between produc- wide network of information protection officers comprises
tion facilities and the fire department. more than 650 employees. They support the implementation
Through our SPIDER Emergency Response and Informa- of our uniform requirements and conduct seminars on secure
tion Center Verbund, our specialists from the site fire depart- behaviors. We provided information protection instruction to
ment, emergency medical team, site security, and environ- more than 27,000 participants in 2016. In addition, we pub-
mental protection can work together quickly and reliably lished standardized Group-wide recommendations for the
across different sites around Europe. Our central emergency protection of information and knowledge.
response supports local emergency response units around For more on corporate security, see basf.com/corporate-security
the world and around the clock.
BASF Report 2016 Management’s Report 101
Responsibility along the value chain — Environment, health, safety and security — Product stewardship
Product stewardship
Suppliers Production Customers
We review the safety of our products from research and In addition, we are also involved in workshops and training
development through production and all the way to our seminars in developing countries and emerging markets.
customers’ application. We work continuously to ensure In 2016, for example, we conducted training sessions for
that our products pose no risk to people or the environ- chemical industry representatives on GPS in China, India and
ment when they are used responsibly and in the manner Kenya on safe chemical management. In order to facilitate
intended. public access to information, we are participating in the setup
of an ICCA online portal that provides more than 4,600 GPS
Strategy safety summaries.
For more on GPS, see basf.com/en/gps
▪▪ Global directives with uniformly high standards for
product stewardship Global goal
We ensure uniformly high standards for product stewardship By 2020, we will conduct risk assessments for all substances
worldwide and our voluntary initiatives go beyond legal and mixtures BASF sells worldwide in quantities of more than
requirements. We monitor the compliance of our guidelines one metric ton per year. We already reached 75.4% of this
with regular audits. goal in 2016 (2015: 67.8%). The risk associated with using a
We provide extensive information on our chemical sales substance is determined by the combination of its hazardous
products to our customers with safety data sheets in more properties and its potential exposure to people and the envi-
than 40 languages. This is achieved with the help of a global ronment.
database in which we maintain and evaluate continuously
updated environmental, health and safety data for our sub- 2020 Goal
stances and products. Our global emergency hotline network
Risk assessment of products
>99%
provides information around the clock. We train and support that we sell in quantities of more
our customers in fulfilling their industry-specific or application- than one metric ton per year
specific product requirements.
The Care Chemicals division, for example, is involved in
the European Federation for Cosmetic Ingredients, EFfCI. REACH and other legal requirements
Together with other producers of cosmetic ingredients, we
discuss the best way to cover our customers’ demand for ▪▪ Third registration phase of REACH in progress
information. The aim is to enable them to ensure the safety of
the cosmetic products they manufacture in accordance with We are working continuously on registering substances pro-
current scientific knowledge. This includes knowledge that duced in annual volumes between one and one hundred
extends back along the value chain to the production pro metric tons for the third phase of the E.U. chemicals regulation,
cesses of the chemical raw materials used. REACH. We have already registered over 250 substances to
The Intermediates division supports information exchange this end. Moreover, our REACH activities are increasingly
with customers who manufacture ingredients for personal determined by E.U. authorities’ decisions on additional studies
end-user products. For example, BASF customers such as in connection with the evaluation of submitted dossiers. Inde-
industrial producers of raw materials for consumer goods are pendently of this, BASF is also obligated to continuously
specifically addressed and advised by BASF’s experts as soon update the registration dossiers it has submitted. The number
as a change is observed in the risk assessment of materials of u pdates has meanwhile exceeded the number of registra-
used in the production process. tions, although over 90% of the updates are undertaken on
With our global risk assessment goal, we are supporting our own initiative and not as a response to official inquiry.
the implementation of initiatives such as the Global Product We apply the experience we have gathered with REACH
Strategy (GPS) of the International Council of Chemical Asso- to fulfill new legal requirements around the world, such as in
ciations (ICCA). GPS is establishing worldwide standards and Korea, Taiwan and Turkey. In 2016, we submitted more than
best practices to improve the safe management of chemical 8,000 preregistrations in Taiwan in order to secure our b
usiness
substances. activities there.
In an increasingly political agrochemical environment, we
are facing a rise in both regulatory requirements and the num-
ber of additional studies required to obtain or extend approval
for crop protection products.
102 Management’s Report BASF Report 2016
Responsibility along the value chain — Environment, health, safety and security — Product stewardship
Environmental and toxicological testing the safety of nanomaterials. We published the results in over
100 scientific articles. One important finding is that toxicity is
▪▪ Use of alternative and complementary methods for determined not by the size of the particles but by the intrinsic
animal studies properties of the substance.
The European Chemicals Agency (ECHA) as well as the
Before launching products on the market, we subject them to OECD and national authorities are currently developing regula-
a variety of environmental and toxicological testing. We apply tory concepts to test and assess nanomaterials. We contribute
state-of-the-art knowledge already in the research and devel- our expertise through various working groups, such as the
opment phase of our products. We only conduct animal Partner Expert Groups (PEGs) of the ECHA or the Business
studies when they are required by law and approved by and Industry Advisory Group (BIAC) of the OECD. These regu-
respective authorities. Animal studies are at times stipulated latory concepts are all based on a new approach for the tar-
by REACH and other national legislation outside the European geted investigation of nanomaterials. We developed them
Union in order to obtain more information on the properties together with the European Centre for Ecotoxicology and
and effects of chemical products. Toxicology of Chemicals (ECETOC) and other experts and
We adhere to the specifications laid down by the German expanded them further using concrete examples in 2016.
Animal Welfare Act as well as the requirements of the Associ- An important prerequisite for the consistent application of
ation for Assessment and Accreditation of Laboratory Animal regulatory specifications for nanomaterials is their clear identi-
Care – the highest standard for laboratory animals in the world. fication. Together with partners, we have developed a tiered,
We are continually developing and optimizing alternative and efficient measurement method in various E.U. projects that is
complementary methods, and we use them wherever it is currently being validated for use in REACH.
possible and approved by the authorities. We use alternative Transparency is another issue. In our Nano dialog forum,
and complementary methods in more than a third of our tests. we meet with environmental and consumer agencies to dis-
Currently, 30 replacement and supplementary methods are cuss questions on nanomaterial safety and transparency and
being used in our labs and another 12 are in the development develop joint recommendations for political representatives.
stage. BASF spent €3.0 million toward this purpose in 2016. We wrapped up another series of talks in BASF’s Nano dialog
One focus area of our research in 2016 and subsequent years forum with a report and an event in Brussels in 2016.
is the development of alternative methods for testing the BASF makes successful use of biotechnology. We pro-
potential of substances that negatively affect organisms’
duce a range of established products with the help of biotech-
growth and development. nological methods. This provides us with a great wealth of
In 2016, our Experimental Toxicology and Ecotoxicology experience in the safe use of biotechnological methods in
department began work together with a total of 39 partners on research and development as well as in production. When
one of the largest European collaborative projects for alterna- employing biotechnology, we adhere to all standards and legal
tive methods. The project, planned to run for six years, aims to regulations. We are guided by the code of conduct set out by
develop alternative methods to the point that chemical risk EuropaBio, the European biotechnology association that
assessments can be efficiently conducted largely without ani- actively supports a science-based, transparent and predict-
mal testing. able regulatory framework. The association addresses soci-
For more on alternative methods, see basf.com/alternative_methods ety’s ethical concerns, and promotes better mutual under-
standing of such issues through dialog.
Management of new technologies For more on nanotechnology and the Nanotechnology Code of Conduct,
see basf.com/nanotechnology
▪▪ Continual safety research on nano- and
biotechnology
Technologies such as nanotechnology or biotechnology offer
solutions for key societal challenges – for example, in the areas
of climate protection or health and nutrition.
Safe handling of nanomaterials is stipulated in our Nano-
technology Code of Conduct. We are constantly expanding our
knowledge of nanomaterial safety. Over recent years, we have
conducted more than 240 toxicological and ecotoxicological
studies and participated in over 30 different projects related to
BASF Report 2016 Management’s Report 103
Responsibility along the value chain — Environment, health, safety and security — Energy and climate protection
Energy and climate protection
Suppliers Production Customers
As an energy-intensive company, we are committed to Our climate protection activities are based on comprehensive
energy efficiency and global climate protection. We want emissions controlling. We report on greenhouse gas emissions
to reduce emissions along the value chain and utilize, for in accordance with the Greenhouse Gas Protocol Standard,
example, efficient technologies for generating steam and as well as the sector-specific standard for the chemical indus-
electricity, energy-efficient production processes, and try. Since 2004, we have participated in the international
comprehensive energy management. Our climate protec- non-profit organization CDP’s program for reporting on data
tion products make an important contribution toward relevant to climate protection. Reporting to CDP entails an
helping our customers avoid emissions. annual analysis performed by our experts of the opportunities
and risks that climate change poses for BASF. BASF achieved
Strategy a score of A- in CDP’s rating for 2016, awarding it “Leader-
ship” status. Companies on the “Leadership” level are distin-
▪▪ We are committed to energy efficiency and global guished by factors such as the completeness and trans
climate protection along the value chain parency of their reporting. They also pursue comprehensive
approaches in managing the opportunities and risks associat-
We want to reduce greenhouse gas emissions in our produc- ed with climate change as well as emissions reduction strate-
tion and along the entire value chain. To this end, we have gies to achieve company-wide goals.
thoroughly analyzed the greenhouse gas emissions from our We advocate climate protection by supporting initiatives
production in the past few years and implemented compre- to this end. The G20 Summit will take place in Hamburg in
hensive reduction measures. This is how, for example, we July 2017, an annual meeting between leaders of state and
have been able to reduce nitrous oxide emissions by more government of the most influential industrialized countries and
than 95% since 1997. emerging markets. Companies from 20 countries – the
Comparisons with European emissions trading bench- Business 20 (B20) – are working on recommendations for
marks show that our greenhouse gas-intensive chemical these political leaders. BASF is leading the working group on
plants operate at above-average efficiency. To supply our energy, climate and resource efficiency. The group especially
production sites with energy, we rely on highly efficient com- aims for a political environment that enables companies like
bined heat and power plants with gas and steam turbines, and BASF to make essential contributions to climate protection
on the use of heat released by production processes. Around using their power of innovation.
50% of BASF Group emissions in 2016 resulted from steam For more on climate protection, see basf.com/climate_protection
and electricity generation in our power plants as well as in our
energy suppliers’ power plants. Reduction of greenhouse gas emissions per metric ton of sales
Our success also depends on the long-term security and product in BASF operations excluding Oil & Gas1, 2 (%)
competitiveness of our energy supplies. Furthermore, we are 2011 2012 2013 2014 2015 2016
2002 2020 Goal
committed to energy management that helps us analyze and Baseline
further improve the energy efficiency of our plants.
We offer our customers solutions that help prevent green-
house gas emissions and improve energy and resource
efficiency. Around half of our total annual research and devel- –34.6 –33.4 –34.1 –33.9 –34.6
–37.2
opment spending goes toward developing these products and –40.0
optimizing our processes. 1
The figure for 2011 was not adjusted to reflect the scope of consolidation pursuant
to +0.1
International Financial Reporting Standards 10 and 11. For more information on
our data collection methods, see page 4.
2
The figures for the 2011 and 2012 business years were not adjusted to the currently
applied factors for global warming potential. For more information on our data
collection methods, see page 104.
104 Management’s Report BASF Report 2016
Responsibility along the value chain — Environment, health, safety and security — Energy and climate protection
BASF Group’s greenhouse gas emissions according to the Greenhouse Gas Protocol1 (1,000 metric tons of CO2 equivalents)
BASF operations including Oil & Gas 2002 2015 2016
Scope 12
CO2 (carbon dioxide) 14,634 16,496 16,215
N2O (nitrous oxide) 6,407 600 528
CH4 (methane) 244 88 45
HFC (hydrofluorocarbons) 61 119 87
SF6 (sulfur hexafluoride) 0 1 0
Scope 23
CO2 5,243 3,795 3,884
Total 26,589 21,099 20,759
Sale of energy to third parties (Scope 1)4
CO2 347 1,071 1,161
Total 26,936 22,170 21,920
1
BASF reports separately on direct and indirect emissions from the purchase of energy. Scope 1 emissions encompass both direct emissions from production and generation
of steam and electricity, as well as direct emissions from the generation of steam and electricity for sale. Scope 2 emissions comprise indirect emissions from the purchase of
energy for BASF‘s use.
2
Emissions of N2O, CH4, HFC und SF6 have been translated into CO2 emissions using the Global Warming Potential, or GWP, factor. GWP factors are based on the Intergovernmental
Panel on Climate Change (IPCC) 1995 (2002 emissions) and IPCC 2007, errata table 2012 (2015 and 2016 emissions). HFC (hydrofluorocarbons) are calculated using the GWP
factors of the individual components.
3
Location-based approach. Information on the calculation of market-based Scope 2 emissions can be found in the GRI and Global Compact Index; see basf.com/en/gri_gc
4
Includes sale to BASF Group companies; as a result, emissions reported under Scope 2 can be reported again in some cases.
Global goals 2020 Goal 2020 Goal
Reduction of greenhouse Coverage of our primary
▪▪ Reduction of greenhouse gas emissions per metric gas emissions per metric energy demand through
ton of sales product ton of sales product certified energy management
Baseline 2002 systems at all relevant sites
▪▪ Introduction of energy management systems in BASF operations excl. Oil & Gas BASF operations incl. Oil & Gas
accordance with ISO 50001
We aim to reduce our greenhouse gas emissions per metric
ton of sales product by 40% by 2020, compared with baseline
–40% 90%
2002. In 2016, we achieved a reduction of 37.2% (2015:
reduction of 34.6%). Since 1990, we have been able to lower In 2016, workshops were conducted in all regions to introduce
our overall greenhouse gas emissions from BASF operations our energy management systems. This is how, for example, an
(excluding Oil & Gas) by 50.2% and even reduce specific energy savings potential of over €1 million per year was identi-
emissions by 75.4%. fied during system implementation at three pilot plants at the
We set ourselves a new energy efficiency goal in 2015 largest South American site in Guaratinguetá, Brazil. It is
covering both the chemicals and the oil and gas businesses. already starting to be realized. All energy efficiency measures
By 2020, we want to have introduced certified energy are recorded and analyzed in a global database and made
management systems (DIN EN ISO 50001) at all relevant pro- available to Group sites as best practices. Currently, over
duction sites5. Taken together, this represents 90% of BASF’s 100 measures are being pursued to reduce energy consump-
primary energy demand. This is one of the ways in which we tion and increase competitive ability. External audits in accor-
intend to identify and carry out improvements in energy dance with ISO 50001 were already conducted at the first two
efficiency, reducing not only greenhouse gas emissions and Chinese sites in the Shanghai metropolitan region in 2016.
saving valuable energy resources, but also increasing the At the moment, 31 sites are certified worldwide, representing
BASF Group’s competitive ability. 42.3% of our primary energy demand.
5
The selection of relevant sites is determined by the amount of primary energy used and local energy prices.
BASF Report 2016 Management’s Report 105
Responsibility along the value chain — Environment, health, safety and security — Energy and climate protection
Energy supply of the BASF Group 2016
Electricity supply 2
Fossil and residual fuels used for power generation in
power plants of the BASF Group
1 Internally generated 70% Electricity
15.0 million
2 Purchased 30% MWh
83.6% Natural gas
31.4 million MWh
1
0.4% Heating oil
0.1 million MWh
3
Steam supply
2.2% Coal
0.9 million MWh
1 Internally generated 52%
2 Waste heat 45% 2
Steam
40.7 million 13.8% Residual fuels
5.2 million MWh
MWh1 1
3 Purchased 3%
Total: 37.6 million MWh
1
Conversion factor: 0.75 MWh per metric ton of steam
Certified energy management systems (ISO 50001) introduced at We were able to further optimize the resource and energy
BASF Group sites worldwide, in terms of primary energy demand (%) consumption of our production in numerous projects around
the world in 2016. New highly efficient combined heat
90
and power plants started up at the German sites in Düsseldorf-
Holthausen and Illertissen as well as at Pontecchio Marconi in
Italy. Furthermore, process improvements at many additional
sites have led to savings in steam and electricity.
We also rely on locally available energy sources for energy
42.3
38.6 39.5 supply at our sites. Especially in the growing Asian market, we
27.3 and our energy suppliers also utilize coal as an energy source
since the more climate-friendly natural gas is not available in
sufficient quantities at competitive prices.
2013 2014 2015 2016 2020 Goal We are exploring the use of renewable energies. These
can only become a permanent part of our energy mix if they
are competitive in terms of supply security and cost. Our
Energy supply and efficiency research also contributes to increasing the efficiency of tech-
nologies for the use of renewable energy sources.
▪▪ Verbund system as important component of our
energy efficiency strategy
Gas and steam turbines in our combined heat and power
plants enable us to fulfill around 70% of the electricity demand
of the BASF Group. Compared with separate methods of
generating steam and electricity, we saved 14.0 million MWh
of fossil fuels and prevented 2.8 million metric tons of carbon
emissions in 2016. The Verbund system is an important com-
ponent of our energy efficiency strategy: Waste heat from one
plant’s production process is used as energy in other plants. In
this way, the Verbund saved us around 19.0 million MWh in
2016, which translates to 3.8 million metric tons less of CO2
released to the environment. With combined power and steam
generation as well as our continuously enhanced Energy Ver-
bund, we were thus able to prevent a total of 6.6 million metric
tons of carbon emissions in 2016.
106 Management’s Report BASF Report 2016
Responsibility along the value chain — Environment, health, safety and security — Energy and climate protection
Key indicators for energy and climate protection in BASF operations excluding Oil & Gas
Baseline 20021 2015 2016
Greenhouse gas emissions (million metric tons of CO2 equivalents)
2
24.713 20.133 19.976
Specific greenhouse gas emissions (metric tons of CO2 equivalents per ton of sales product) 0.897 0.587 0.564
Primary energy demand3 (million MWh) 55.759 57.262 57.423
Energy efficiency (kilograms of sales product per MWh) 494 599 617
1
The values for baseline 2002 were not adjusted to reflect the currently applied global warming potential factors.
2
Scope 1 and Scope 2 (location-based) according to the GHG Protocol Standard, excluding emissions from the generation of steam and electricity for sale to third parties;
information on market-based Scope 2 emissions can be found in the GRI and Global Compact Index; see basf.com/en/gri_gc
3
Primary energy used in BASF’s plants as well as in the plants of our energy suppliers to cover energy demand for production processes
Carbon footprint and climate protection products Greenhouse gas emissions along the BASF value chain in 2016 4
(million metric tons of CO2 equivalents)
▪▪ Reporting on greenhouse gas emissions along the 22 BASF 18 Disposal
entire value chain Production (including genera- Incineration with energy
tion of steam and electricity) recovery, landfilling (C 12)
▪▪ Customers’ use of climate protection products sold
in 2016 avoids 540 million metric tons of CO2
equivalents
61 Suppliers 4 Transport 46 Customers 4 Other
Purchased products, Transport of products, Emissions from (C 3b, 3c, 5,
BASF has been publishing a comprehensive corporate carbon services and capital employees’ commuting and the use of end 8, 13, 15)
footprint since as early as 2008. This reports on all emissions goods (C 1, 2, 3a) business travel (C 4, 6, 7, 9) products (C 11)
along the value chain and shows the volume of emissions 4
According to Greenhouse Gas Protocol, Scope 1, 2 and 3; categories within Scope 3
prevented through the use of our climate protection products. are shown in parentheses
We plan our climate protection activities along the value chain
based on our corporate carbon footprint. An analysis of 24 climate protection product groups revealed
Through various measures to reduce our raw material and that customers’ use of products sold in 2016 helped to avoid
energy requirements, the emission of greenhouse gases asso- 540 million metric tons of CO2 equivalents. Every product
ciated with producing the raw materials was decreased by a makes an individual contribution in the value chain of c
ustomer
total of around 155,000 metric tons in 2016. solutions. Value chains are assessed in terms of BASF’s eco-
Our climate protection products help us offer solutions to nomic share of the respective customer solution. On average,
our customers to avoid greenhouse gas emissions over their 11% of the emissions avoided were attributable to BASF in
entire lifecycle as compared with reference products. Accord- 2016. The calculation of avoided greenhouse gas emissions
ing to the systematic sustainability analysis we conduct on our was based on the chemical industry standard of the Interna-
portfolio – using the Sustainable Solution Steering® method – tional Council of Chemical Associations (ICCA) and the World
such products are referred to as “Accelerator” solutions as Business Council for Sustainable Development (WBCSD).
using them contributes positively to climate protection and For more on our emissions reporting, see
basf.com/corporate_carbon_footprint
energy. One example is our Green Sense® Concrete tech
For more on the sustainability analysis of our product portfolio,
nology for sustainable construction: The optimization of the see page 30 onward
concrete’s composition allows for reduced greenhouse gas
emissions compared with conventional concrete production.
Prevention of greenhouse gas emissions through the use of
BASF products (million metric tons of CO2 equivalents)
Emissions along the entire value chain
Without the use of BASF’s
1,110
climate protection products
Emissions avoided
With the use of BASF’s
570
climate protection products
540 million metric tons
BASF Report 2016 Management’s Report 107
Responsibility along the value chain — Environment, health, safety and security — Water
Water
Suppliers Production Customers
Water is of fundamental importance in chemical produc- We offer our customers solutions that help purify water and
tion. It is used as a coolant, solvent and cleaning agent, use it more efficiently while minimizing pollution.
as well as to make our products. We are committed to In order to ensure transparency in our reporting on water,
its responsible use along the entire value chain and espe- we once again took part in CDP reporting in 2016. According
cially in our production sites’ water catchment areas. We to CDP, an international nonprofit organization, BASF is a
have set ourselves a global goal for sustainable water world leader in sustainable water management and was
management. included for the first time in CDP’s Water A List. Of the
607 companies evaluated, only 24 of them received the top
Strategy score of “A” – among them, BASF. CDP’s evaluation of sus-
tainable water management includes how transparently
▪▪ Sustainable water management companies report on their water management activities and
what they do to reduce risks, such as water scarcity. CDP
We aim to use water as sparingly as possible and further also assesses the extent to which product developments –
reduce emissions to water. To do so, we have set out a Group even at the customers of the companies under evaluation –
directive with globally applicable standards. can contribute to sustainable water management.
We are introducing sustainable water management at all For more on the CDP water survey, see basf.com/en/cdp
relevant production sites. These include our major Verbund
sites as well as the sites in water stress areas, or regions in Global goal
which more than 60% of available water is used by industry,
household and agriculture. We consider the quantitative, By 2025, we want to introduce sustainable water manage-
qualitative and social a
spects of water use. We want to iden- ment at all sites in water stress areas and at our Verbund sites,
tify where we can improve at our sites, and use as little water covering 93% of BASF’s entire water abstraction. We achieved
as possible, especially in water stress areas. 42.6% of this goal in 2016.
Together with the city of Guaratinguetá, Brazil, and the
Fundação Espaço ECO®, we are engaged in the restoration
of the local river basin at our site in Guaratinguetá, Brazil,
which provides 90% of the local population’s water supply.
These efforts aim to improve water quality and increase its
availability.
Water stress areas around the world
Source: Pfister et al., 2009
108 Management’s Report BASF Report 2016
Responsibility along the value chain — Environment, health, safety and security — Water
Water in the BASF Group 2016 (million cubic meters per year)
Abstraction / Use Discharge
withdrawal
1,649 6,461 1,644
1 1
15% 85%
Production Cooling
Surface water / freshwater 1,360
Brackish water / seawater 200
Groundwater 66 Cooling 6,214 Surface water / freshwater 1,428
Drinking water 21 Thereof recirculating 4,754 Brackish water / seawater 187
Reusable wastewater once-through 1,460 Groundwater 11
from third parties 2 Production2 247 External treatment plant 18
1
The difference between the volume of water drawn and the volume discharged is primarily attributable to evaporation losses during closed-circuit cooling.
2
Total from production processes, graywater, rinsing and cleaning in production
We pursue our goal by applying the European Water Steward- The supply, treatment, transportation and recooling of water is
ship standard, which rests on four principles: sustainable associated with a considerable energy demand. We employ
water abstraction, maintaining good water quality, preserving various means in our efforts to minimize this as much as
conservation areas, and ensuring continuous improvement possible. We are constantly working to optimize our energy
processes, including in cooperation with other users. consumption and the amount of water we use, and to adapt
In 2016, around 23% of our production sites were located to the needs of our business and the environment.
in water stress areas. Around 1% of BASF’s total water supply
was abstracted from these sites. Emissions to water
2025 Goal ▪▪ Further reduction of emissions
Introduction of sustainable
water management at all A total of 1,644 million cubic meters of water were discharged
100%
production sites in water stress from BASF production sites in 2016, including 184 million
areas and at all Verbund sites
BASF operations excl. Oil & Gas cubic meters of wastewater from production. Emissions of
nitrogen to water amounted to 2,900 metric tons (2015:
3,000 metric tons). We were able to achieve this improvement
Water use by optimizing processes and exchanging products, for exam-
ple. Around 15,900 metric tons of organic substances were
▪▪ Using water responsibly emitted in wastewater (2015: 17,300 metric tons). Our waste-
water contained 23 metric tons of heavy metals (2015:
Our water usage totaled 1,649 million cubic meters in 2016. 25 metric tons). Phosphorus emissions amounted to
This demand was covered for the most part by surface water, 310 metric tons (2015: 460 metric tons). Our wastewater is
such as rivers and lakes. At some sites, we use alternative treated through different methods depending on the type and
sources such as treated municipal wastewater, brackish water degree of contamination – including biological processes, oxi-
or seawater, reducing our need for freshwater. dation, membrane technologies, precipitation or adsorption.
We predominantly use water for cooling purposes (85%), In order to avoid unanticipated emissions and the pollution
after which we recirculate it back to our supply sources. We of surface or groundwater, we create water protection strate-
recirculate as much water as possible in order to withdraw gies for our production sites. This is mandatory for all produc-
less. Our larger sites have recooling plants that allow water to tion plants as part of the Responsible Care initiative. The
be reused several times and which reduce the temperature of wastewater protection plans involve evaluating wastewater in
used cooling water before it is discharged back into a body of terms of risk and drawing up suitable monitoring approaches.
water. We use audits to check that these measures are being imple-
mented and complied with.
For more, see basf.com/water
BASF Report 2016 Management’s Report 109
Responsibility along the value chain — Environment, health, safety and security — Air and soil
Air and soil
Suppliers Production Customers
We want to further reduce emissions to air from our pro- Emissions to air
duction, prevent waste and protect the soil. We have set
ourselves standards for doing so in global directives. If no ▪▪ Further reduction of emissions
recovery options are available for waste, we dispose of it
in a proper and environmentally responsible manner. Absolute emissions of air pollutants from our chemical plants
amounted to 26,735 metric tons in 2016. Emissions of
Strategy ozone-depleting substances as defined by the Montreal Pro-
tocol totaled 25 metric tons in 2016 (2015: 23 metric tons).
▪▪ Regular monitoring of emissions to air Emissions of heavy metals in 2016 amounted to 3 metric tons
▪▪ Professional disposal of hazardous waste (2015: 4 metric tons).
▪▪ Systematic management of contaminated sites Our product portfolio contains a variety of catalysts used in
the automotive sector and in industry to reduce the emission
Regular monitoring of our emissions to air is a part of environ- of air pollutants.
mental management at BASF. Aside from greenhouse gases,
we also measure emissions of other pollutants into the atmo-
Emissions to air (metric tons)
sphere. Our reporting does not take into account air pollutant Air pollutants from BASF operations excluding Oil & Gas
emissions from oil and gas operations due to their substantial
fluctuation during exploration phases. 2016 2015
Our Raw Material Verbund helps us prevent and reduce CO (carbon monoxide) 3,585 3,813
waste. We regularly carry out audits to inspect external waste NOX (total nitrogen oxides) 11,143 11,058
disposal companies, ensuring that our hazardous waste in NMVOC (nonmethane volatile organic compounds) 4,824 5,140
particular is properly disposed of. In this way, we also contrib- SOX (total sulfur oxides) 1,872 3,028
ute to preventive soil protection and keep today’s waste from Dust 3,082 3,330
becoming tomorrow’s contamination. NH3 (ammonia) and other inorganic substances 2,229 2,216
When treatment is required for soil and groundwater con- Total 26,735 28,585
tamination at active and former BASF sites, proper remediation
measures are reviewed based on prevailing legal and current
technical standards, and undertaken as necessary.
110 Management’s Report BASF Report 2016
Responsibility along the value chain — Environment, health, safety and security — Air and soil
Waste management Management of contaminated sites
▪▪ Total waste volume slightly above prior-year level ▪▪ Systematic management of contaminated sites
ensured
Waste prevention is our topmost goal. If waste is unavoidable,
we review the options for recycling or energy recovery, using We develop remediation solutions that combine nature con-
BASF’s existing Verbund structures for efficient waste man- servation, climate protection concerns, costs, and social
agement. Total waste volume amounted to 2.10 million metric responsibility. This means making customized decisions on a
tons in 2016 (+3.7%). case-by-case basis, founded on the legal framework and
current technological possibilities. We set out global standards
Waste management in the BASF Group (million metric tons)
for our approach to managing contaminated sites. A world-
wide network of experts ensures their proper implementation.
2016 2015 We have been documenting relevant sites in a contami
Total waste generation1 2.10 2.02 nated site database since 2013. Ongoing remediation work
Thereof from oil and gas exploration 0.06 0.05 around the world continued on schedule and planning was
Waste recovered 0.77 0.68 concluded on future landfill remediation projects.
Recycled 0.26 0.27
Thermally recovered 0.51 0.41
Waste disposed of 1.33 1.34
In underground landfills 0.14 0.14
In surface landfills 0.47 0.48
Through incineration 0.72 0.72
Classification of waste for disposal2
Nonhazardous waste 0.46 0.44
Hazardous waste 0.87 0.90
Transported hazardous waste 0.23 0.27
1
Comprises all production waste and hazardous waste from construction activities
2
The classification of waste into hazardous and nonhazardous waste is performed
according to local regulations.
BASF Report 2016 Management’s Report 111
Forecast — Opportunities and risks report
Forecast
Opportunities and risks report
Opportunities Risks Risk management
Potential successes that Events that can negatively Identifying opportunities
xceed our defined goals
e impact the achievement and risks as early as possible
of our goals and planning effective
courses of action
The goal of BASF’s risk management is to identify and Potential short-term effects on EBIT of key opportunity
evaluate opportunities and risks as early as possible and and risk factors subsequent to measures taken1
to take appropriate measures in order to seize opportuni-
ties and limit business losses. The aim is to avoid risks Outlook
that pose a threat to BASF’s continued existence and to Possible variations related to: – 2017 +
make improved managerial decisions to create value. We
understand risk to be any event that can negatively i mpact Business environment and sector
the achievement of our short-term operational or long- Market growth
term strategic goals. We define opportunities as potential Margins
successes that exceed our defined goals. Competition
Regulation/policy
In order to effectively measure and manage identified opportu-
nities and risks, we quantify these in terms of probability and Company-specific opportunities and risks
economic impact in the event they occur. We use statistical Purchasing/supply chain
methods to aggregate opportunities and risks into risk factors. Investments/production
This way, we achieve an overall view of opportunities and risks Personnel
at a portfolio level, allowing us to take effective measures for Acquisitions/divestitures/cooperations
risk management. Information technology
Law
Overall assessment
Finance
▪▪ Significant risks and opportunities arise from overall Exchange rate volatility
economic developments and volatility in exchange Other financial opportunities and risks
rates and margins €100 million
€100 million < €500 million
€500 million < €1,000 million
For 2017, we expect the global economy to continue to grow
€1,000 million < €1,500 million
at around the same pace as the previous year. Important
1
Using a 95% confidence interval per risk factor based on planned values;
opportunities and risks for our earnings are associated with summation is not permissible.
uncertainty regarding market growth, the development of key
customer industries, and volatility in foreign currency exchange
rates and margins. A considerable slowdown of the Chinese According to our assessment, there continue to be no signifi-
economy continues to pose significant risks. Such a develop- cant individual risks that pose a threat to the continued exis-
ment would negatively impact demand for intermediate and tence of the BASF Group. The same applies to the sum of
investment goods. This would impact the emerging markets individual risks, even in the case of another global economic
that export raw materials as well as the advanced economies. crisis.
This is especially true for Europe. Further risks to the global Ultimately, however, residual risks remain in all entrepre-
economy arise from an escalation of geopolitical conflicts and neurial activities which even comprehensive risk management
an increased tendency toward protectionism. cannot exclude.
112 Management’s Report BASF Report 2016
Forecast — Opportunities and risks report
Organization of BASF Group’s risk management1
Supervisory Board
Corporate Audit Board of Executive Directors External Auditors
Corporate Units
Chief Compliance Officer Corporate Strategic Planning Legal, Taxes, Insurance
Finance
Controlling & Controlling & Intellectual Property
Divisions Regions Verbund Sites Competence Centers
Risk management process aterial prices are an exception. In this case, there is an
m
initial consolidation at a Group-wide level before derivative
▪▪ Integrated process for identification, assessment hedging instruments, for example, are used.
and reporting ––BASF’s Chief Compliance Officer (CCO) manages the imple-
▪▪ Decentralized management of specific opportunities mentation of our Compliance Management System, sup-
and risks ported by additional compliance officers worldwide. The
▪▪ Aggregation at a Group level CCO regularly reports to the Board of Executive Directors on
progress in the program’s implementation as well as on any
The BASF Group’s risk management process is based on the significant results. Furthermore, the CCO provides a status
international risk management standard COSO II Enterprise report to the Supervisory Board’s Audit Committee at least
Risk Management – Integrated Framework (2004), and has once each year, including any major developments. In the
the following key features: event of significant incidents, the Audit Committee is imme-
diately informed by the Board of Executive Directors.
Organization and responsibilities ––The internal auditing unit (Corporate Audit) is responsible for
––Risk management is the responsibility of the Board of Execu regularly auditing the risk management system established
tive Directors, which also determines the processes for by the Board of Executive Directors in accordance with
approving investments, acquisitions and divestitures. Section 91(2) of the German Stock Corporation Act. Further-
––The Board of Executive Directors is supported by the units more, as part of its monitoring of the Board of Executive
Finance; Corporate Controlling; Strategic Planning & Directors, the Supervisory Board considers the effectiveness
Controlling; Legal, Taxes, Insurance & Intellectual Property; of the risk management system. The suitability of the early
and the Chief Compliance Officer. Effective January 1, 2017, detection system we set up for risks is evaluated by our
the Finance corporate unit and the Legal, Taxes, Insurance external auditor.
and Intellectual Property corporate unit were both renamed
functional units. Competence centers were relabeled either Instruments
functional units or research units. The Strategic Planning & ––The Risk Management Process Manual, applicable through-
Controlling unit is now called Corporate Development. The out the Group, forms the framework for risk management
new nomenclature had no effect on the existing risk man- and is implemented by the business units according to their
agement processes. The aforementioned units continue to particular business conditions.
coordinate the risk management process at a Group level ––A catalog of opportunity and risk categories helps to identify
and provide the structure and appropriate methodology. all relevant opportunities and risks as comprehensively as
Opportunity and risk management is thus integrated into the possible.
strategy, planning and budgeting processes. ––We use standardized evaluation and reporting tools for the
––A network of risk managers in the business, research, func- identification and assessment of risks. The aggregation of
tional and corporate units advances the implementation of opportunities, risks and sensitivities at the business and
appropriate risk management practices in daily operations. Group level using a Monte Carlo simulation helps us to iden-
––The management of specific opportunities and risks is largely tify effects and trends across the company.
delegated to the business units and is steered at a regional ––The BASF Group’s management is informed about opera-
or local level. Risks relating to exchange rates and raw tional opportunities and risks (observation period of up to
1
The names of some individual units were changed as of January 1, 2017. For more information, see the section “Organization and responsibilities.”
BASF Report 2016 Management’s Report 113
Forecast — Opportunities and risks report
one year) in the monthly management report produced by An internal control system for financial reporting continuously
the Corporate Controlling unit. In addition, Corporate Con- monitors these principles. To this end, methods are provided
trolling and Finance provide information twice a year on the to ensure that evaluation of the internal control system in finan-
aggregated opportunity/risk exposure of the BASF Group. cial reporting is structured and uniform across the BASF Group.
Furthermore, if a new individual risk is identified which has a The significant risks for the BASF Group regarding a reli-
more than €10 million impact on earnings or bears reputa- able control environment for proper financial reporting are
tional risks, it must be immediately reported. reviewed and updated on an annual basis. Risks are compiled
––As part of our strategy development, the Corporate Devel- into a central risk catalog.
opment unit conducts strategic opportunity/risk analyses Moreover, a centralized selection process identifies com-
with a ten-year assessment period. These analyses are panies that are exposed to particular risks, that have a materi-
annually reviewed as part of strategic controlling and are al impact on the Consolidated Financial Statements of the
adapted if necessary. BASF Group, or that provide service processes. The selection
––Our Group-wide Compliance Program aims to ensure process is conducted annually. In the relevant companies, one
adherence to legal regulations and the company’s internal person is given the responsibility of monitoring the execution
guidelines. Our global employee Code of Conduct firmly of the annual evaluation process.
embeds these mandatory standards into everyday business.
Members of the Board of Executive Directors are also In these companies, the process comprises the following
expressly obligated to follow these principles. steps:
For more on our Group-wide Compliance Program, ––Evaluation of the control environment
see page 134 onward
Adherence to internal and external guidelines that are rele-
vant for the maintenance of a reliable control environment is
Significant features of the internal control and checked by means of a standardized questionnaire and evi-
risk management system with regard to the denced by sample taking.
Group financial reporting process ––Identification and documentation of control activities
In order to mitigate the risks to the financial reporting pro-
▪▪ Conducted in accordance with standardized Group cesses listed in our central risk catalog, critical processes
guidelines and control activities are documented.
▪▪ Segregation of duties, four-eyes principle, and clearly ––Assessment of control activities
regulated access rights After documentation, a review is performed to verify whether
▪▪ Annual evaluation of control environment and relevant the described controls are capable of adequately covering
processes at significant companies the risks. In the subsequent test phase, samples are taken
to test whether, in practice, the controls were executed as
The Consolidated Financial Statements are prepared by a unit described and effective.
in the Finance division. BASF Group’s accounting process is ––Monitoring of control weaknesses
based on a standardized accounting guideline that sets out The managers responsible receive reports on any control
accounting policies and the significant processes and dead- weaknesses identified and their resolution, and an interdisci-
lines on a Group-wide basis. There are binding directives for plinary committee investigates their relevance for the
the internal reconciliations and other accounting operations. BASF Group. The Board of Executive Directors and the Audit
Standard software is used to carry out the accounting pro- Committee are informed once control weaknesses have
cesses for the preparation of the individual financial statements been identified that have a considerable impact on financial
as well as for the Consolidated Financial Statements. There reporting. Only after material control weaknesses have been
are clear rules for the access rights of each participant in these resolved does the company’s managing director confirm the
processes. effective internal control system.
Employees involved in the accounting and reporting pro- ––Internal confirmation of the internal control system
cess meet the qualitative requirements and participate in All managing directors and chief financial officers of each
training on a regular basis. There is a clear assignment of consolidated Group company must confirm to the Board of
responsibilities between the specialist units, companies and Executive Directors of BASF SE every half-year and at the
regional service units involved. We strictly adhere to the princi- end of the annual cycle, in writing, that the internal control
ples of segregation of duties and dual control, or the “four-eyes system is effective with regard to accounting and reporting.
principle.” Complex actuarial reports and evaluations are pro-
duced by specialized service providers or specially qualified
employees.
114 Management’s Report BASF Report 2016
Forecast — Opportunities and risks report
Short-term opportunities and risks Competition
Development of demand We continuously enhance our products and solutions in order
to maintain competitive ability. We watch the market and the
The development of our sales markets is one of the strongest competition, and try to take targeted advantage of opportuni-
sources of opportunities and risks. More details on our ties and counter emerging risks with fitting measures. Aside
assumptions regarding short-term growth rates for the global from innovation, a major component of competitiveness is a
economy, regions and key customer industries, such as the suitable cost structure in order to achieve good business per-
chemicals, automotive and construction sectors, can be found formance on the market.
from pages 119 to 121.
We also consider risks from deviations in assumptions. We Regulation and political risks
continue to see a significant macroeconomic risk in an
increased slowdown of the Chinese economy, which would Risks for us can arise from intensified geopolitical tensions, the
have considerable impact on demand for intermediate goods destabilization of political systems or new trade sanctions. In
for industrial production as well as investment goods. This addition, risks to the BASF Group can be posed by further
would have an effect on emerging markets that export raw regulations on the use or registration of agricultural and other
materials as well as on advanced economies that specialize in chemicals.
technological goods. Risks to the global economy would also The German federal government’s agreement with the
be posed by the possible escalation of geopolitical conflicts E.U. Commission on the treatment of existing self-generated
and an increased tendency toward protectionism. energy in the new Renewable Energy Act (Erneuerbare-
Should the macroeconomic environment develop more Energien-Gesetz, or EEG) has removed the previously reported
weakly than we predict, we expect a lower oil price. In this risk of sharply increased charges resulting from the EEG sur-
case, we would also expect the euro to depreciate relative to charge.
the U.S. dollar as compared with our planning assumptions, We view the worldwide expansion of renewable energy
as the eurozone’s economy shows a high level of dependency and measures to increase energy efficiency as an opportunity
on exports and, in times of global economic weakness, the for increased demand for our products. For example, we offer
U.S. dollar is preferred by portfolio investors as a safe haven. solutions for wind turbines in addition to insulation foams for
Weather-related influences can result in positive or nega- buildings. Our catalyst business benefits from the tightening of
tive effects on our crop protection business. automobile emissions regulations.
Margin volatility Purchasing and supply chain
We anticipate generally stable margins for the BASF Group in We minimize procurement risks through our broad portfolio,
2017. For some products and value chains, it is possible that global purchasing activities and the purchase of raw materials
margin pressure could be increased by, for example, new on spot markets, as well. If possible, we avoid procuring raw
capacities or increasing raw material costs. This would have a materials from a single supplier. When this cannot be avoided,
negative effect on our EBIT. we try to foster competition or we knowingly enter into this
The year’s average oil price for Brent crude was around relationship and assess the consequences of potential non
$44 per barrel in 2016, compared with $52 in the previous delivery. We continuously monitor the credit risk of important
year. For 2017, we anticipate an average oil price of $55 per business partners.
barrel. We therefore expect a moderate increase in price levels
for the raw materials and petrochemical basic products that Production and investments
are important to our business. Yet an oil price level below the
expected average would pose risks for our oil and gas busi- We try to prevent unscheduled plant shutdowns by adhering
ness, whose EBIT dips by approximately €20 million for every to high technical standards and by continuously improving our
$1 decrease in the average annual barrel price of Brent crude. plants. We reduce the effects of unscheduled shutdowns on
the supply of intermediate and end products through diversifi-
cation within our global production Verbund.
In the event of a production outage – caused by an acci-
dent, for example – our global, regional or local emergency
response plans and crisis management structures are
engaged, depending on the impact scope. Every region has
crisis management teams on a local and regional level. They
BASF Report 2016 Management’s Report 115
Forecast — Opportunities and risks report
not only coordinate the necessary emergency response mea- To minimize such risks, BASF uses globally uniform processes
sures, they also initiate the immediate measures for damage and systems to ensure IT security, such as stable and redun-
control and resumption of normal operations as quickly as dantly designed IT systems, backup processes, virus and
possible. access protection and encryption systems as well as
Short-term risks from investments can result from, for integrated, Group-wide standardized IT infrastructure and
example, technical malfunctions or schedule and budget applications. The systems used for information security are
breaches. We counter these risks with highly experienced constantly tested, continuously updated, and expanded if
project management and controlling. necessary. In addition, our employees receive regular training
For more on emergency response, see page 100 or on information and data protection. IT-related risk manage-
basf.com/emergency_response
ment is conducted using Group-wide regulations for organiza-
tion and application, as well as an internal control system
Acquisitions, divestitures and cooperations based on these regulations.
BASF also established a Cyber Defense Center in 2015; is
We are constantly watching our environment in order to iden- a member of the Cyber Security Sharing and Analytics e.V.
tify possible targets and develop our portfolio appropriately. In (CSSA); and is a founding member of the German Cyber
addition, we work together in collaborations with customers Secur ity Organization (DCSO) together with Allianz SE,
and partners to jointly develop new, competitive products and Bayer AG and Volkswagen AG.
applications.
Legal dispute and proceedings
Personnel
We constantly monitor current and potential legal disputes and
Due to BASF’s worldwide compensation principles, the devel- proceedings, and regularly report on these to the Board of
opment of personnel expenses is partly dependent on the Executive Directors and Supervisory Board. In order to assess
amount of variable compensation, which is linked to the com- the risks from current legal disputes and proceedings and any
pany’s success, among other factors. The correlation between potential need to recognize provisions, we prepare our own
variable compensation and the success of the company has analysis and assessment of the circumstances and claims
the effect of minimizing risk. Another factor is the development considered. In addition, in individual cases, we consider the
of interest rates for discounting pension obligations. Further- results of comparable proceedings and, if needed, indepen-
more, changes to the legal environment of a particular country dent legal opinions. Risk assessment is particularly based on
can have an impact on the development of personnel estimates as to the probability of occurrence and the range of
expenses for the BASF Group. For countries in which BASF is possible claims. These estimates are the result of close coop-
active, relevant developments are therefore constantly moni- eration between the affected operating and functional units
tored in order to recognize risks at an early stage and enable together with the Legal and Finance units. If sufficient proba-
BASF to carry out suitable measures. bility is identified, a provision is recognized accordingly for
For more on our compensation system, see page 44 onward each dispute. Should a provision be unnecessary, general risk
For more on risks from pension obligations, see page 117 management continues to assess whether these litigations
nevertheless present a risk for the EBIT of the BASF Group.
Information technology risks We use our internal control system to limit risks from
potential infringements of rights or laws. For example, we try
BASF relies on a number of IT systems. Their nonavailability, to avoid patent and licensing disputes whenever possible
violation of confidentiality or the manipulation of data in critical through extensive clearance research. As part of our Group-
IT systems and applications can all have a direct impact on wide Compliance Program, our employees receive regular
production and logistics processes. The threat environment training.
has changed in recent years, as attackers have become better
organized, use more sophisticated technology, and have far
more resources available. If data are lost or manipulated, this
can, for example, negatively affect process safety and the
accuracy of our financial reporting. Unauthorized access to
sensitive data, such as personnel records, competition-related
information or research results, can result in legal conse
quences or jeopardize our competitive position. This would
also be accompanied by the associated loss of reputation.
116 Management’s Report BASF Report 2016
Forecast — Opportunities and risks report
Financial opportunities and risks Liquidity risks
The management of liquidity, currency and interest rate risks is Risks from fluctuating cash flows are recognized in a timely
conducted in the Treasury unit. The management of commod- manner as part of our liquidity planning. We have access to
ity price risks takes place in the Procurement functional unit or extensive liquidity at any time thanks to our good ratings, our
in the appropriately authorized Group companies. Detailed unrestricted access to the commercial paper market and
guidelines and procedures exist for dealing with financial risks. committed bank credit lines. In the short to medium term,
Among other things, they provide for the segregation of trad- BASF is largely protected against potential refinancing risks by
ing and back office functions. the balanced maturity profile of its financial indebtedness as
well as through diversification in various financial markets.
Exchange rate volatility For more on financial risks, see the Notes to the Consolidated Financial
Statements from page 208 onward
For more on the maturity profile of our financial indebtedness, see the
Our competitiveness on global markets is influenced by fluc Notes to the Consolidated Financial Statements from page 204 onward
tuations in exchange rates. For BASF’s purchasing, oppor
tunities and risks arise in particular when the U.S. dollar Risk of asset losses
exchange rate fluctuates. A full-year rise in the value of the
U.S. dollar/euro exchange rate by $0.01 would result in an We limit country-specific risks with measures based on inter-
increase of around €40 million in the BASF Group’s EBIT,
nally determined country ratings, which are continuously
assuming other conditions remain the same. On the produc- updated to reflect changing environment conditions. We
tion side, we counter foreign currency risks by producing in the selec tively use investment guarantees to limit specific
respective currency zones. country-related risks. We lower credit risks for our financial
Financial currency risks result from the translation of investments by engaging in transactions only with banks with
receivables, liabilities and other monetary items in accordance good credit ratings and by adhering to fixed limits. Creditwor-
with IAS 21 at the closing rate into the functional currency of thiness is continuously monitored and the limits are adjusted
the respective Group company. In addition, we incorporate accordingly. We reduce the risk of default on receivables by
planned purchase and sales transactions in foreign currencies continuously monitoring the creditworthiness and payment
in our financial foreign currency risk management. These risks behavior of our customers and by setting appropriate credit
are hedged using derivative instruments, if necessary. limits. Due to the global activities and diversified customer
structure of the BASF Group, there are no major concentra-
Interest rate risks tions of credit d
efault risk. Risks are also limited through the
use of credit insurance and bank guarantees.
Interest rate risks result from potential changes in prevailing
market interest rates. These can cause a change in the fair Impairment risks
value of fixed-rate instruments and fluctuations in the interest
payments for variable-rate instruments, which would positively The risk of an asset impairment occurs if the assumed interest
or negatively affect earnings. To hedge these risks, interest rate in an impairment test increases, the predicted cash flows
rate swaps and combined interest rate and currency deriva decline, or investment projects are suspended. In the current
tives are used in individual cases. business environment, we consider the risk of impairment of
In addition to market interest rates, BASF’s financing costs individual assets such as customer relationships, technologies
are determined by the credit risk premiums to be paid. These and trademarks, as well as goodwill, to be nonmaterial. Never-
are mainly influenced by our credit rating and the market con- theless, a continuing decline in the price of oil below our
ditions at the time of issue. In the short to medium term, BASF assumed planning level would result in impairment risks for the
is largely protected from the possible effects on its interest Oil & Gas segment’s assets.
result thanks to the well-balanced maturity profile of its finan-
cial indebtedness.
Risks from metal and raw materials trading
In the catalysts business, BASF employs commodity deriva-
tives for precious metals and trades precious metals on behalf
of third parties and on its own account. In addition, we use our
knowledge of the markets for crude oil and oil products to
generate earnings from the trade of raw materials. To address
specific risks associated with these trades, which are not part
of our operating business, we set and continuously monitor
limits with regard to the type and size of the deals concluded.
BASF Report 2016 Management’s Report 117
Forecast — Opportunities and risks report
Long-term incentive program for senior executives Development of competitive and customer landscape
Our senior executives have the opportunity to participate in a We expect competitors from emerging markets to gain
share-price-based compensation program. The need for pro- increasing significance in the years ahead. Furthermore, we
visions for this program varies according to the development predict that many raw material suppliers will expand their value
of the BASF share price and the MSCI World Chemicals Index; chains.
this leads to a corresponding increase or decrease in person- We counter this risk through active portfolio management.
nel costs. We exit markets where risks outweigh opportunities, and in
which we see limited possibilities to stand out from our com-
Risks from pension obligations petitors in the long term.
In order to remain competitive, we continuously improve
Most employees are granted company pension benefits from our operational excellence. Our strategic excellence program,
either defined contribution or defined benefit plans. We pre- DrivE, also contributes to this aim. Starting at the end of 2018,
dominantly finance company pension obligations externally we expect this program to contribute around €1 billion in
through separate plan assets. This particularly includes BASF earnings each year compared with baseline 2015.
Pensionskasse VVaG and BASF Pensionstreuhand e.V. in In order to achieve lasting profitable growth, tap into new
Germany, in addition to the large pension plans of our Group market segments and customers, and make our customers
companies in North America, the United Kingdom and Swit- more successful, our research and business focus is on highly
zerland. To address the risk of underfunding due to market- innovative business areas, some of which we enter into
related fluctuations in plan assets, we have investment strate- through strategic cooperative partnerships.
gies that align return and risk optimization to the structure of
the pension obligations. Stress scenarios are also simulated Innovation
regularly by means of portfolio analyses. An adjustment to the
interest rates used in discounting pension obligations leads The trend toward more sustainability in our customer indus-
immediately to changes in equity. To limit the risks of changing tries continues. We want to use innovations to take advantage
financial market conditions as well as demographic develop- of the resulting opportunities. In the long term, we aim to
ments, employees have been almost exclusively offered continue increasing sales and earnings with new and improved
defined contribution plans for future years of service in recent products.
years. BASF’s enhanced innovation approach helps the company
increase its power of innovation and ensure competitive ability
Long-term opportunities and risks through targeted enhancement and innovative application of
specific key technologies. This is achieved by honing the focus
Long-term demand development of research on topics with long-term strategic business rele-
vance, enhancing existing scientific processes and methods
We assume that chemical production (excluding pharmaceuti- and introducing new ones, and optimizing our organizational
cals) will grow considerably faster than global gross domestic structures. The central research areas Process Research &
product over the next five years and at about the same level as Chemical Engineering, Advanced Materials & Systems
the previous five-year average. Through our market-oriented Research and Bioscience Research serve as global platforms
and broad portfolio, which we will continue to strengthen in the headquartered in one of the regions particularly significant for
years ahead through investments in new production capaci- us: Europe, Asia Pacific and North America. Together with the
ties, research and development activities and acquisitions, we development units in our operating divisions, they form the
aim to achieve sales growth that slightly exceeds this market core of the global Know-How Verbund. Stronger regional
growth. Should global economic growth see unexpected, presence opens up new opportunities to participate in local
considerable deceleration, due for example to an ongoing innovation processes and gain access to local talent. We also
weak period in the emerging markets or to geopolitical crises, address the risk of the technical or economic failure of research
the expected growth rates could prove too ambitious. As a and development projects by maintaining a balanced and
result of our high degree of diversification across various cus- comprehensive project portfolio, as well as through profes-
tomer industries and regions, we would still expect our growth sional, milestone-based project management.
to be above the market average, even under these conditions. We optimize the efficiency and effectiveness of our
For more on the “We create chemistry” strategy, see page 22 onward research activities through our global Know-How Verbund as
well as through collaboration with partners and customers.
Furthermore, we continuously review the chances of success
and the underlying conditions of research projects; this
118 Management’s Report BASF Report 2016
Forecast — Opportunities and risks report
review includes all phases from idea generation to product Recruitment and long-term retention of qualified
launch. The trust of customers and consumers is essential for employees
the successful introduction of new technologies. That is why
we enter into dialog with stakeholders at an early stage of BASF, too, is adjusting in the medium and long term to the
development. rising challenge of gaining skilled employees due to demo-
For more on innovation, see page 32 onward graphic changes, especially in North America and Europe. As
a result, there is an increased risk that job vacancies may not
Portfolio development through investments be filled with suitable applicants, or only after a delay. We
address these risks through our Best Team Strategy and the
We expect the increase in chemical production in emerging global initiatives derived from it, covering demographic and
markets in the coming years to remain above the global aver- knowledge management, Diversity + Inclusion, employee and
age. This will create opportunities that we want to exploit by leadership development, intensified employer branding, and
expanding our local presence; therefore, more than a quarter supplementary regional initiatives. With these measures, we
of our investment budget will be spent in emerging markets increase BASF’s attractiveness as an employer and retain our
over the next five years. In North America, investments in new employees in the long term.
production facilities form the basis of future growth. For exam- For more on the individual initiatives and our goals, see page 40 onward
ple, we are constructing an ammonia production plant in
Freeport, Texas, with Yara International ASA (based in Oslo, Sustainability
Norway). In addition, we are continuing to evaluate an invest-
ment in a world-scale methane-to-propylene complex on the BASF uses sustainability management tools to identify
U.S. Gulf Coast and conduct regular assessments with a view upcoming opportunities and risks that arise in connection with
to developments in raw material prices and the relevant mar- the topics of environment, society and governance. Their long-
ket conditions. term effect on our business activities and their associated
Our decisions on the type, size and locations of our invest- relevance are assessed through such instruments as our
ment projects are based on assumptions related to the long- materiality analysis, and take into account our experiences
term development of markets, margins and costs, as well as from constant stakeholder dialog. We have established global
raw material availability and country, currency and technology monitoring systems to check adherence to laws and our
risks. Opportunities and risks arise from potential deviations in voluntary commitments in the areas of environment, society
actual developments from our assumptions. and governance. These also incorporate our suppliers.
For more on our investment plans, see page 123 onward In terms of upcoming opportunities and risks, material
aspects identified included: energy and climate, water,
Acquisitions resources and ecosystems, responsible production, and
employment and employability. In addition to specific require-
In the future, we will continue to refine our portfolio through ments for these aspects, discussion is growing surrounding
acquisitions that promise above-average profitable growth, the internalization of external effects.
are innovation-driven, offer added value for our customers In order to identify, assess and direct climate-related risks
and reduce the cyclicality of our earnings. and opportunities, our risk management process includes
The evaluation of opportunities and risks plays a signifi- analyzing the material aspect “energy and climate.” For BASF
cant role during the assessment of acquisition targets. A as an energy-intensive company, opportunities and risks arise
detailed analysis and quantification are conducted as part particularly from regulatory changes, such as in carbon prices
of due diligence. Examples of risks include increased staff through emissions trading systems, taxes or energy legisla-
turnover, delayed realization of synergies, and the assump- tion.
tion of obligations that were not precisely quantifiable in For more on sustainability management, see page 29 onward
advance. If our expectations in this regard are not fulfilled, For more on energy and climate protection, see page 103 onward
risks could arise, such as the need to impair intangible For more on opportunities and risks from energy policies, see page 114
assets; however, there could also be opportunities, for
example, from additional synergies.
For more on our acquisitions, see page 37 onward
BASF Report 2016 Management’s Report 119
Forecast — Economic environment in 2017
Economic environment in 2017
The global economy will presumably grow by 2.3% in Outlook for gross domestic product 2017
2017, about as fast as in 2016 (+2.3%). In light of signifi- (Real change compared with previous year)
cant political uncertainty, volatility is likely to remain high.
We forecast a considerable slowdown in growth in the World 2.3%
European Union. For the United States, we currently European Union 1.3%
anticipate a slight upturn in growth. Growth in China is United States 2.0%
likely to continue its downward trend. We expect the Emerging markets of Asia 5.6%
recession in Brazil and Russia to end. We assume that Japan 0.7%
global chemical production will grow by 3.4% in 2017, South America 0.8%
comparable with the rate of 2016. For 2017, we predict an
Trends in gross domestic product 2017–2019
average price of $55 per barrel for Brent blend crude oil (Average annual real change)
and an exchange rate of $1.05 per euro.
World 2.6%
Trends in the global economy in 2017 European Union 1.5%
United States 2.0%
▪▪ Weaker growth likely in the European Union Emerging markets of Asia 5.7%
▪▪ Further slowing of growth expected for China Japan 0.8%
▪▪ Slight upturn probable in the United States South America 1.8%
▪▪ End of recession anticipated for Russia and Brazil
Economic growth in the European Union is expected to slow In the emerging markets of Asia, we expect growth to con-
down considerably in 2017. In the United Kingdom, uncer tinue weakening in 2017. Against the backdrop of economic
tainty as to the terms of exit from the European Union is likely restructuring in China, we anticipate a further cooldown in
to curb investment and private consumption. This weaker economic momentum. We predict growth at levels compara-
dynamic will have a dampening effect on the growth of Britain’s ble to 2016 for the other countries in the region. While devel-
E.U. trading partners, including Germany, Italy, France and opments in China will probably exercise a dampening effect,
Spain. Growth will presumably remain at a stable higher level raw material prices and demand for imports from South
in the eastern E.U. countries. We expect the recession in America and Russia should stabilize. The region’s economy is
Russia to end, supported by our forecast of a slight recovery supported by a solidly growing IT and communications
in the oil price. industry.
Following the administration change in the United States, Japan’s gross domestic product is expected to maintain
economic prospects for the United States are especially diffi- its merely minimal upward trend in 2017. Monetary and fiscal
cult to predict. We assume that this uncertainty will be reflect- policy will continue to provide some growth impetus; however,
ed in a greater reluctance to invest in the manufacturing and investment momentum and private consumption will remain
service sectors. Nevertheless, overall economic growth in on the slow side in an environment of weak domestic demand.
2017 will quicken somewhat, as investments in the oil and gas Moreover, we do not expect any significant impulses that
industry are unlikely to continue declining. While the tax cuts would boost exports.
planned by the new U.S. administration could have positive We anticipate an end to the economic downturn in South
effects on growth, the expected protectionist measures and America. Leading indicators suggest that Brazil has bottomed
the stronger U.S. dollar pose risks to the country’s economy. out. Falling interest rates and declining inflation could increas-
ingly support readiness to invest in the country; export demand
is also likely to rise. We forecast economic recovery in Argen-
tina. Decreasing inflation, a stable exchange rate and a better
investment climate should provide impetus for growth.
120 Management’s Report BASF Report 2016
Forecast — Economic environment in 2017
Outlook for key customer industries short term; financing conditions and the volume of a potential,
state-funded infrastructure program remain unclear. In China,
▪▪ Marginally higher growth expected in global industrial we continue to expect support measures for the construction
production for 2017 industry; growth there will nevertheless abate. We still expect
the other Asian emerging markets to show stable growth rates
Global industrial production in 2017 is likely to grow marginally in the construction industry. In Japan, government spending
faster than in 2016, at 2.3%. This will be largely attributable to programs should ensure additional investments in infrastruc-
the end of the severe recession in South America, where ture. The construction market in South America is likely to
industrial production should once again show slight growth. In recover somewhat after the declines of recent years. Given a
the emerging markets of Asia, growth in industrial production background of continuing weak oil prices, only a slight recovery
will abate slightly, from 5.5% to 5.2%. In the advanced econo- in construction activity is expected in the Middle East.
mies, it will probably remain weak, at under one percent. Consumer goods production will presumably grow s lightly
We expect an economic slowdown in the transportation faster in 2017 than in the previous year. The increase will
sector overall compared with 2016. After three years of solid remain weak in western Europe; eastern Europe will see h igher
growth, automotive production is likely to expand only slowly rates, albeit somewhat lower than in 2016. After a slight
in western Europe, while other branches of the transportation decline in the previous year, we once again expect modest
industry could increase their growth rates. A turnaround can growth in North America. In Asia, which accounts for over half
be expected in the Russian automotive market. The eastern of the world’s production of consumer goods, growth will
European automotive market will begin growing again slightly probably remain stable at a high level. For South America, we
as a result, even if at a low level. In North America, we expect predict consumer goods output will stagnate following last
production to stagnate overall. U.S. automotive production will year’s considerable decline.
probably shrink slightly; in Mexico, on the other hand, new The electronics industry is likely to expand its production
production-line startups are expected to lead to growth. In at a similarly strong rate as in 2016. We anticipate stable
South America, we anticipate slight increases in production growth in Asia, the center of the global electronics industry,
once again for 2017. Growth in automotive production in at a level comparable to that of the previous year. The increase
China will weaken after the significant gains seen in 2016. will probably be somewhat higher year-on-year in North
In the energy and raw materials sector, production will America.
presumably grow again in 2017 after stagnating in 2016. How- In the health and nutrition sector, growth should once
ever, in Europe and South America, we only anticipate a slight again match the levels of recent years. We expect the increase
increase in production volumes. Higher raw material prices to be slightly higher overall in the European Union and in North
and the return of stronger demand are likely to provide some- America. The fast pace of growth in this sector in Asia will
what faster growth in North America. Production will expand probably let up slightly in 2017. In this industry, too, we expect
only moderately in the emerging markets of Asia; this will be production to recover in South America.
partly offset by rising imports from Australia. We expect stable to slightly accelerating growth in agricul-
For the construction sector, we are assuming that the tural production in 2017, given the low level of agricultural
solid growth rates will continue overall. Construction volumes production growth in 2016. Record yields in some regions – of
will grow only moderately in western Europe. A sharp increase corn and soy in North America and wheat in eastern Europe,
in Germany and weak growth in France and Italy will contrast for example – contrasted with declining yields in parts of
with a shrinking market in the United Kingdom. In the eastern South America and Asia in particular, due to the negative
E.U. countries, construction activity will recover somewhat effects of El Niño as well as weaker monsoon rains. Global
after the strong declines of the previous year. However, we still demand for bioethanol in 2017 will remain dampened by lower
see no increase in activity in Russia. Construction in North prices in the energy sector. Against this backdrop, we expect
America is expected to grow at a moderate pace. We do not prices for agricultural raw materials to remain under pressure
anticipate growth impetus in the infrastructure sector in the in 2017.
BASF Report 2016 Management’s Report 121
Forecast — Economic environment in 2017
Outlook for the chemical industry Overall chemical growth is likely to decelerate somewhat in the
emerging markets of Asia, mainly due to the slowdown in
▪▪ Global growth in chemical industry at level China, which will also affect the other developing countries in
of previous year the region.
In Japan, we presume a weak overall economic environ-
Global chemical production (excluding pharmaceuticals) will ment and minimal growth in chemical production.
probably grow by 3.4% in 2017, the same pace as 2016 In South America, the anticipated end of the recession in
(+3.4%). We anticipate a marginally higher expansion rate Argentina and Brazil will result in slight growth in chemical
in the advanced economies (2016: +0.9%, 2017: +1.1%). production in the region.
Growth in the emerging markets will presumably weaken
somewhat (2016: +5.4%, 2017: +5.1%). The global growth
Outlook for chemical production 2017 (excl. pharmaceuticals)
rate of the chemical market will be largely determined by (Real change compared with previous year)
developments in China, which accounts for more than a third
of worldwide production. There, the upward trend may con World 3.4%
tinue to slacken but producers in China are nevertheless likely European Union 0.5%
to contribute more than two percentage points to worldwide United States 1.8%
chemical industry growth. Yet macroeconomic risks in China Emerging markets of Asia 5.8%
remain high, therefore, our forecast for global chemical growth Japan 0.5%
is marked by particular uncertainty. South America 1.2%
Chemical production in the European Union is expected
to barely grow faster than in 2016. In general, the increase in
Trends in chemical production 2017–2019 (excl. pharmaceuticals)
production will remain modest against the backdrop of a slug- (Average annual real change)
gish domestic market. We expect competitive pressure on
export markets to remain intense, even though the naphtha- World 3.6%
based European chemical industry benefits more from low oil European Union 1.0%
prices than the gas-based production in the United States. United States 2.7%
In the United States, we expect somewhat faster growth Emerging markets of Asia 5.7%
in chemical production, at just under 2%, as new production Japan 0.5%
capacity, which will also be used for export, comes onstream. South America 1.9%
122 Management’s Report BASF Report 2016
Forecast — Outlook 2017
Outlook 2017
For 2017, we expect the global economy and chemical Sales and earnings forecast for the segments
production to grow at around the same pace as 2016. We
assume an average price of $55 for a barrel of Brent blend Sales in the Chemicals segment are likely to grow consider-
crude oil and an exchange rate of $1.05 per euro. In an ably in 2017. We anticipate higher sales prices as a conse-
environment that remains volatile, we aim to grow profit- quence of rising raw material prices, as well as volumes growth
ably and considerably raise the BASF Group’s sales. For from factors such as the startup of new plants. We assume
income from operations (EBIT) before special items as that strong competitive pressure will continue, especially on
well as for EBIT, we anticipate a slight increase compared the markets for butanediol, isocyanates and caprolactam.
with the previous year.1 EBIT before special items is likely to match the level of 2016.
For more information on our expectations for the economic environment We expect the earnings contribution from the increase in sales
in 2017, see page 119 onward
volumes to offset both margin pressure and higher fixed costs.
Fixed costs will rise especially in the Intermediates division,
Sales and earnings forecast for the BASF Group mainly as a result of scheduled plant turnarounds and initial
expenditures for the new acetylene plant in Ludwigshafen.
▪▪ Considerable sales growth through increases In the Performance Products segment, we expect the
in all segments market environment to remain challenging, but nevertheless
▪▪ Slightly higher EBIT before special items aim to slightly increase sales in 2017. This will be largely sup-
ported by volumes growth in all divisions, thanks in part to
We expect BASF Group sales to grow considerably in the higher plant capacity utilization rates as well as the startup of
2017 business year. This will be supported by slightly higher new production capacities. We anticipate higher fixed costs in
sales in the Performance Products segment and by consider- 2017, especially from new plant startups. This rise will be more
able increases in the other segments as well as in Other. than offset by strict cost discipline and measures to increase
We want to slightly raise EBIT before special items com- competitiveness in all divisions. As a result, we forecast slightly
pared with 2016. We anticipate considerably higher contribu- higher EBIT before special items compared with 2016.
tions from the Oil & Gas segment and from Other. In the We want to achieve a considerable sales increase in the
Performance Products, Functional Materials & Solutions and Functional Materials & Solutions segment in 2017. The
Agricultural Solutions segments, we assume EBIT before Chemetall business acquired from Albemarle will contribute
special items will be slightly higher, while the contribution from to this, as will the sales volumes growth anticipated in all divi-
the Chemicals segment will match the prior-year level. sions. Our forecast is supported by the expectation of continu-
BASF Group EBIT is also expected to grow slightly in ing good demand from the automotive and construction
2017. A significantly higher contribution from the Oil & Gas industries. The divestitures completed in 2016 in the Catalysts
segment and slight increases in the Chemicals, Performance and Coatings divisions, along with a probable decline in pre-
Products and Agricultural Solutions segments are expected to cious metal prices, will slow sales growth. As a result of higher
more than offset the slight declines in the Functional Mate- sales, EBIT before special items is likely to slightly exceed the
rials & Solutions segment and in Other. In 2016, EBIT of the level of 2016.
Functional Materials & Solutions segment contained special For the Agricultural Solutions segment, we anticipate
income from divestitures, and EBIT of Other included special stable market development for crop protection products in
income from the sale of assets. 2017. Our goal is to utilize growth potential on the market pri-
We are likely to once again earn a significant premium on marily through the launch of innovative products, growth in the
our cost of capital in 2017; compared with the previous year, emerging markets – especially Asia – and a strong customer
however, BASF Group EBIT after cost of capital will decrease focus. We are planning to increase volumes in 2017 and con-
considerably. The slight rise in EBIT – despite a lower level of siderably boost sales levels. Because of ongoing margin
special income from divestitures – will be contrasted by higher pressure in a market environment that remains challenging, we
cost of capital, due for the most part to the acquisition of assume a slight increase in EBIT before special items.
Chemetall at the end of 2016 as well as the startup of new
plants. In the Functional Materials & Solutions segment, we
are therefore assuming that EBIT after cost of capital will
decline considerably. We aim to boost it slightly in the Chemi-
cals segment and considerably in the other segments.
The significant risks and opportunities that could affect our
forecast are described on pages 111 to 118.
1
With reference to sales, “slight” represents a change of 1–5%, while “considerable” applies to changes of 6% and higher. “At prior-year level” indicates no change (+/–0%).
For earnings, “slight” means a change of 1–10%, while “considerable” is used for changes of 11% and higher. “At prior-year level” indicates no change (+/–0 %).
BASF Report 2016 Management’s Report 123
Forecast — Outlook 2017
Forecast by segment1 (million €)
Income from operations (EBIT)
Sales before special items
2016 Forecast 2017 2016 Forecast 2017
Chemicals2 12,905 considerable increase 2,032 at prior-year level
Performance Products2 15,558 slight increase 1,777 slight increase
Functional Materials & Solutions 18,732 considerable increase 1,946 slight increase
Agricultural Solutions 5,569 considerable increase 1,087 slight increase
Oil & Gas 2,768 considerable increase 517 considerable increase
Other 2,018 considerable increase (1,050) considerable increase
BASF Group 57,550 considerable increase 6,309 slight increase
1
For sales, “slight” represents a change of 1–5%, while “considerable” applies to changes of 6% and higher. “At prior-year level” indicates no change (+/–0%).
For earnings, “slight” means a change of 1–10%, while “considerable” is used for changes of 11% and higher. “At prior-year level” indicates no change (+/–0 %).
2
Effective January 1, 2017, the Chemicals and Performance Products segments’ activities for the electronics industry were merged and allocated to the Performance Products
segment as the Electronic Materials global business unit. To facilitate comparability, the 2016 figures for both segments have been adjusted accordingly.
Our planning for the 2017 business year in the Oil & Gas Investments3
segment is based on an average price for Brent blend crude oil
of $55 per barrel. Gas prices in northwestern Europe are likely ▪▪ Investments of around €3.9 billion planned for 2017
to hover above the level of 2016. We anticipate a considerable
rise in sales and EBIT before special items. Higher prices for Our investments in 2016 focused on the Chemicals, Perfor-
oil and gas and a contribution from our share in the Yuzhno mance Products and Oil & Gas segments. For example, we
Russkoye natural gas field exceeding that of the previous year started up further sections of the TDI production complex
will substantially support this development. In 2016, the in Ludwigshafen, Germany; completed construction of the
excess amounts received over previous years were compen- aroma ingredients complex in Kuantan, Malaysia; and invested
sated as contractually agreed with our partner, G
azprom. in field development projects in Argentina, Norway and Russia.
Sales in Other are expected to considerably increase in For 2017, we are planning total capital expenditures of
2017, primarily as a result of higher prices in raw material around €3.9 billion for the BASF Group. We have planned
trading. We also anticipate a considerable rise in EBIT before capital expenditures totaling €19.0 billion for the period from
special items as compared with 2016. 2017 to 2021 and will invest more than a quarter of this
amount in emerging markets. The average investment volume
in the years ahead will therefore remain at the same level as in
2016. Projects currently being planned or underway include:
Capital expenditures: Selected projects
Location Project
Caojing, China Construction: automotive coatings plant
Geismar, Louisiana Capacity expansion: MDI
Ludwigshafen, Replacement: acetylene plant
Germany Construction: vitamin A production plant
In the Oil & Gas segment, our currently planned investments of
around €4.4 billion between 2017 and 2021 will focus mainly
on the development of proven gas and oil deposits in Argen
tina, Norway and Russia. The actual amount of expenditure is
also dependent on oil and gas price developments and will be
adjusted as necessary.
3
Excluding additions to property, plant and equipment from acquisitions, capitalized exploration, restoration obligations and IT investments
124 Management’s Report BASF Report 2016
Forecast — Outlook 2017
Investments in property, plant and equipment Financing
by segment, 2017–2021
6 Our financing policy is aimed at ensuring our solvency at all
1 Chemicals 24% 1
times, limiting the risks associated with financing and optimiz-
2 Performance Products 21%
ing our cost of capital. We strive to maintain at least a solid
3 Functional Materials & Solutions 15%
5 €19.0 billion “A” rating, which allows the BASF Group unrestricted access
4 Agricultural Solutions 4%
to money and capital markets.
5 Oil & Gas 23%
2 From the scheduled repayment of bonds, we expect cash
6 Other (infrastructure, R&D) 13% 4
3
outflows in the equivalent amount of around €1.4 billion in
2017. To refinance mature bonds and to optimize our maturity
profile, we continue to have medium to long-term corporate
Investments in property, plant and equipment bonds and our U.S. dollar commercial paper program at our
by region, 2017–2021 disposal.
5
4 Information on our financing policies can be found on page 57
1 Europe 49%
2 North America 22%
3
3 Asia Pacific 16% 1
€19.0 billion Events after the reporting period
4 South America, Africa, Middle East 10%
5 Alternative sites currently
being investigated 3% Since the end of the 2016 business year, we have acquired
2
the Henkel Group’s western European building material busi-
ness for professional users and completed the purchase of
Rolic AG, an Allschwil, Switzerland-based company primarily
active in the display material sector.
Dividend For more information, see the Notes to the Consolidated Financial
Statements on page 220
We stand by our ambitious dividend policy and offer our share-
holders an attractive dividend yield. We continue to aim to
increase our dividend each year, or at least maintain it at the
previous year’s level.
Information on the proposed dividend can be found from page 12 onward
3
To Our Shareholders 5
Management’s Report 17
Corporate Governance
Consolidated Financial Statements 151
Supplementary Information on the Oil & Gas Segment 221
Overviews 231
Corporate governance report 127
Compliance 134
Management and Supervisory Boards 136
Board of Executive Directors 136
Supervisory Board 137
Compensation report 138
Report of the Supervisory Board 146
Corporate Governance
Declaration of Conformity as per
Section 161 AktG (Stock Corporation Act) 150
Declaration of Corporate Governance 150
BASF Report 2016 Corporate Governance 127
Corporate governance report
Corporate governance report
Board of Executive Supervisory Board Shareholders
Directors
Manages company and Appoints, monitors and Exercise rights of co-adminis-
represents BASF SE in advises Board of tration and supervision at
business with third parties Executive Directors Annual Shareholders’ Meeting
Corporate governance refers to the entire system for The Board’s actions and decisions are geared toward the
managing and supervising a company. This includes its company’s best interests. It is committed to the goal of sus-
organization, values, corporate principles and guidelines tainably increasing the company’s value. Among the Board’s
as well as internal and external control and monitoring responsibilities is the preparation of the consolidated and
mechanisms. Effective and transparent corporate gover- separate financial statements of BASF SE. Furthermore, it
nance guarantees that BASF is directed and monitored in must ensure that the company’s activities comply with the law
a responsible manner focused on value creation. It fosters and with internal corporate directives. This includes the estab-
the confidence of our domestic and international inves- lishment of appropriate systems for control, compliance and
tors, the financial markets, our customers and other risk management.
business partners, employees, and the public in BASF. Decisions that are reserved for the Board as a whole by
law, through the Board of Executive Directors’ Rules of Proce-
The fundamental elements of BASF SE’s corporate gover- dure or through resolutions adopted by the Board, are made
nance system are: its two-tier system, with a transparent and at regularly held Board meetings called by the Chairman of the
effective separation of company management and supervision Board of Executive Directors. Board decisions are generally
between BASF’s Board of Executive Directors and the Super- based on detailed information and analyses provided by the
visory Board; the equal representation of shareholders and business areas and specialist units, and, if deemed necessary,
employees on the Supervisory Board; and the shareholders’ by external consultants. Board decisions can generally be
rights of co-administration and supervision at the Annual made via a simple majority. In the case of a tied vote, the
Shareholders’ Meeting. casting vote is given by the Chairman of the Board. However,
the Chairman of the Board does not have the right to veto the
Direction and management by the Board of decisions of the Board of Executive Directors. Members of the
Executive Directors Board of Executive Directors are authorized to make decisions
individually in their assigned areas of responsibility.
▪▪ Board of Executive Directors strictly separated from The Board can set up Board Committees to consult and
the Supervisory Board decide on individual issues; these must include at least three
▪▪ Responsible for company management members of the Board of Executive Directors. For the prepa-
▪▪ Sets corporate goals and strategic direction ration of important decisions, such as those on acquisitions,
divestitures, investments and personnel, the Board has various
The Board of Executive Directors is responsible for the commissions at the level below the Board that carefully assess
management of the company, and represents BASF SE in the planned measure and evaluate the associated opportuni-
business undertakings with third parties. BASF’s Board of ties and risks, and based on this information, report and make
Executive Directors is strictly separated from the Supervisory recommendations to the Board – independently of the affected
Board, which monitors the activity of the Board of Executive business area.
Directors and decides on its composition. A member of the The Board of Executive Directors informs the Supervisory
Board of Executive Directors cannot simultaneously be a Board regularly, without delay and comprehensively, of all
member of the Supervisory Board. As the central duty of com- issues important to the company with regard to planning,
pany management, the Board of Executive Directors agrees business development, risk situation, risk management and
on the corporate goals and strategic direction of the BASF compliance. Furthermore, the Board of Executive Directors
Group as well as its individual business areas; determines the coordinates the company’s strategic orientation with the
company’s internal organization; and decides on the composi- Supervisory Board.
tion of management on the levels below the Board. It also
manages and monitors BASF Group business by planning and
setting the corporate budget, allocating resources and
management capacities, monitoring and making decisions on
significant individual measures, and supervising operational
management.
128 Corporate Governance BASF Report 2016
Corporate governance report
Two-tier management system of BASF SE
Board of Executive Directors Supervisory Board
appoints the Board of Executive Directors
monitors the Board of Executive Directors
advises the Board of Executive Directors
reports to Supervisory Board
8 members 12 members
appointed by the Supervisory Board 6 shareholder representatives elected
Chairman at the Annual Shareholders’ Meeting
appointed by the Supervisory Board and
6 employee representatives
Chairman
elected by the Supervisory Board
The Statutes of BASF SE define certain transactions that quota for the Supervisory Board mandated by law as of Janu-
require the Board of Executive Directors to obtain the Super ary 1, 2016. The German Codetermination Act does not apply
visory Board’s approval prior to their conclusion. Such cases to BASF as a European stock corporation (Societas Europaea,
include the acquisition and disposal of enterprises and parts of SE).
enterprises, as well as the issue of bonds or comparable finan- The Supervisory Board of BASF SE comprises twelve
cial instruments. However, this is only necessary if the acquisi- members. Six members are elected to a five-year term each
tion or disposal price or the amount of the issue in an individual by the shareholders at the Annual Shareholders’ Meeting. The
case exceeds 3% of the equity reported in the last approved remaining six members are elected by the BASF Europa
Consolidated Financial Statements of the BASF Group. Betriebsrat (BASF Works Council Europe), the European
For more on risk management, see the Forecast from page 111 onward employee representation body of the BASF Group.
The members of the Board of Executive Directors, including their areas The meetings of the Supervisory Board and its committees
of responsibility and memberships on the supervisory bodies of other
companies, are listed on page 136. Compensation of the Board of are called by their chairmen and, independently, at the request
Executive Directors is described in detail in the Compensation Report of one of their members or the Board of Executive Directors.
from page 138 onward
Resolutions of the Supervisory Board are passed by a simple
majority vote of the participating members. In the event of a
Supervision of company management by the tie, the vote of the Chairman of the Supervisory Board, who
Supervisory Board must always be a shareholder representative, shall be the
casting vote. This resolution process is also applicable for the
▪▪ Supervisory Board appoints, monitors and advises appointment and dismissal of members of the Board of Execu
Board of Executive Directors tive Directors by the Supervisory Board. Resolutions can, as
▪▪ Four Supervisory Board committees needed, also be made in writing or through other means of
communication outside of the meetings, as long as no mem-
The Supervisory Board appoints the members of the Board of ber objects to this form of passing a resolution.
Executive Directors and supervises and advises the Board on BASF SE’s Supervisory Board has established a total of
management issues. As members of the Supervisory Board four Supervisory Board Committees: the Personnel Commit-
cannot simultaneously be on the Board of Executive Directors, tee, the Audit Committee, the Nomination Committee and the
a high level of autonomy is already structurally ensured with Strategy Committee.
regard to the supervision of the Board of Executive Directors. For more on the Statutes of BASF SE and the Employee Participation
Agreement, see basf.com/en/cg/investor
In addition to the SE Council Regulation, the relevant legal
The members of the Supervisory Board of BASF SE, including their
basis for the size and composition of the Supervisory Board is membership on the supervisory bodies of other companies, are listed
provided by the Statutes of BASF SE and the Agreement on page 137
Concerning the Involvement of Employees in BASF SE Compensation of the Supervisory Board is described in the
ompensation Report from page 144 onward
C
(Employee Participation Agreement), which also includes the
regulations applicable to BASF for implementing the gender
BASF Report 2016 Corporate Governance 129
Corporate governance report
Personnel Committee Financial Experts:
Dame Alison Carnwath DBE and Franz Fehrenbach are mem-
Members: bers with special knowledge of, and experience in, applying
Dr. Jürgen Hambrecht (chairman), Michael Diekmann, Robert accounting and reporting standards and internal control meth-
Oswald, Michael Vassiliadis ods pursuant to the German Corporate Governance Code.
Duties:
––Prepares the appointment of members to the Board of Nomination Committee
Executive Directors by the Supervisory Board as well as the
employment contracts to be entered into with members of Members:
the Board of Executive Directors Dr. Jürgen Hambrecht (chairman), Dame Alison Carnwath
––When making recommendations for appointments to the DBE, Prof. Dr. François Diederich, Michael Diekmann, Franz
Board of Executive Directors, considers professional qualifi- Fehrenbach, Anke Schäferkordt
cations, international experience and leadership skills as well
as long-term succession planning, diversity, and especially Duties:
the appropriate consideration of women
––Identifies suitable candidates for the Supervisory Board
––Prepares the resolutions made by the Supervisory Board based on objectives for the composition decided on by the
with regard to the system and amount of compensation paid Supervisory Board
to members of the Board of Executive Directors ––Prepares the recommendations made by the Supervisory
Board for the election of Supervisory Board members for the
Annual Shareholders’ Meeting
Audit Committee
Members: Strategy Committee
Dame Alison Carnwath DBE (chairman), Ralf-Gerd Bastian,
Franz Fehrenbach, Michael Vassiliadis Members:
Dr. Jürgen Hambrecht (chairman), Dame Alison Carnwath
Duties: DBE, Michael Diekmann, Robert Oswald, Michael Vassiliadis
––Prepares the negotiations and resolutions of the Supervisory
Board for the approval of the Financial Statements and Con- Duties:
solidated Financial Statements, and discusses the quarterly ––Handles the further development of the company’s strategy
statements and half-year financial reports with the Board of ––Prepares resolutions of the Supervisory Board on the
Executive Directors prior to their publication company’s major acquisitions and divestitures
––Deals with monitoring the financial reporting process, the
annual audit, the effectiveness of the internal control system,
the risk management system, and the internal auditing sys- Meetings and meeting attendance
tem as well as compliance issues
––Is responsible for business relations with the company’s In the 2016 business year, meetings were held as follows:
external auditor: prepares the Supervisory Board’s proposal ––The Supervisory Board met five times.
to the Annual Shareholders’ Meeting regarding the selection ––The Personnel Committee met four times.
of an auditor, monitors the auditor’s independence, defines ––The Audit Committee met five times.
the focus areas of the audit together with the auditor, nego- ––The Nomination Committee met once.
tiates auditing fees and establishes the conditions for the ––The Strategy Committee did not meet.
provision of the auditor’s nonaudit services
––Is authorized to request any information that it deems neces- With the exception of one Supervisory Board meeting at which
sary from the auditor or Board of Executive Directors; can one member was absent due to illness, all respective mem-
also view all of BASF’s business documents and examine bers attended all meetings of the Supervisory Board and its
these and all other assets belonging to BASF. The Audit committees.
Committee can also engage experts such as auditors or For more on the Supervisory Board’s activities and resolutions in
the 2016 business year, see the Report of the Supervisory Board
lawyers to carry out these inspections on page 146
For an individual overview of meeting attendance, see
basf.com/governance/supervisoryboard/meetings
130 Corporate Governance BASF Report 2016
Corporate governance report
Objectives for Supervisory Board composition On this basis, the Supervisory Board has determined that all of
its current members can be considered independent. We
▪▪ Composition criteria: professional and personal firmly believe that the current composition fulfills the objectives
qualifications, diversity, and independence with the aforementioned exception regarding the period of
membership.
One important concern of good corporate governance is to
ensure that seats on the responsible corporate bodies, the Commitments to promote the participation of
Board of Executive Directors and the Supervisory Board, are women in leadership positions at BASF SE
appropriately filled. Seats on the Board of Executive Directors
and Supervisory Board of BASF SE should be filled with mem- ▪▪ Minimum quota on Supervisory Board, target
bers who ensure a well-balanced consideration of all the figures for Board of Executive Directors and
knowledge, skills and personal qualifications necessary to top management
manage and supervise BASF as a large, globally operating,
capital market-oriented company in the chemical industry. On April 24, 2015, the Law on Equal Participation of Women
On October 21, 2010, the Supervisory Board agreed upon and Men in Leadership Positions in the Private and Public Sec-
objectives for the composition of the Supervisory Board in tor came into force in Germany.
accordance with Section 5.4.1 of the German Corporate The supervisory board of a publicly listed European society
Governance Code; these were supplemented in the Super (SE) that is composed of the same number of shareholder and
visory Board meetings of December 20, 2012, and Octo- employee representatives must, according to Section 17(2) of
ber 22, 2015. According to these objectives, the Supervisory the SE Implementation Act, consist of at least 30% each of
Board shall be composed in such a way that the members as women and men. The Supervisory Board of BASF SE currently
a group possess knowledge, ability and expert experience in comprises three women and nine men. Two of the six share-
the following: holder representatives elected at the Annual Shareholders’
––The management of an internationally operating company Meeting are women. According to the legal stipulations of Sec-
––Cross-industry value creation along different value chains tion 17(2) SE Implementation Act, the minimum quota is not to
––The application of accounting principles and internal control be fulfilled immediately but rather upon any necessary reap-
procedures pointments, that is, new elections. In 2016, the employee-
––The field of technical and scientific innovations in the chemi- elected Supervisory Board member Wolfgang Daniel left the
cal sector and associated industries as well as in the sectors Supervisory Board. He is succeeded by Waldemar Helber, who
using chemical products. joined the Supervisory Board without additional appointment,
that is, without election, as the member personally chosen to
At least one independent member of the Supervisory Board replace Wolfgang Daniel as early as 2013 until the end of the
must have expertise in the fields of accounting or auditing as 2019 Annual Shareholders’ Meeting. In accordance with legal
per Section 100(5) of the German Stock Corporation Act regulations, the legal minimum quota will therefore be reached
(AktG). With regard to diversity, the Supervisory Board shall after the next regular Supervisory Board election in 2019 at the
consider a variety of professional and international experience latest.
as well as the participation of women. Individuals who may As a target figure for the Board of Executive Directors, the
have a conflict of interest shall not be nominated for election to Supervisory Board determined, in accordance with Section
the Supervisory Board. The same applies to candidates who 111(5) AktG for the first target-attainment period after the law’s
will have reached the age of 70 by the day of the election. entry into force, that the Board of Executive Directors should
Membership on the Supervisory Board should generally not have at least one female member. With eight members of the
exceed 15 years; this corresponds to three regular statutory Board of Executive Directors, this represents 12.5%. Both at the
periods in office. The members of the Supervisory Board elect- time the target was set, and by the target-attainment deadline
ed at the Annual Shareholders’ Meeting already fulfill this target on December 31, 2016, the Board of Executive Directors con-
– in effect since October 2015 – with one exception. tained one woman. The stipulation was therefore met.
With regard to independence, the Supervisory Board aims In addition, the Board of Executive Directors decided on
to ensure that all Supervisory Board members are independent target figures for the percentage of women in the two manage-
as defined by the terms of the Code. In assessing indepen- ment levels below the Board of Executive Directors of BASF SE
dence, the Supervisory Board assumes that neither election as per the legal requirements in Section 76(4) AktG: These were
as an employee representative, nor membership on the Board at 9.4% for the leadership level directly below the Board, and
of Executive Directors more than two years in the past, nor the 11.8% for the level below that. This corresponded to the status
duration of membership on the Supervisory Board, taken in at the time these target figures were determined.
isolation, precludes the classification as independent.
BASF Report 2016 Corporate Governance 131
Corporate governance report
On December 31, 2016, the deadline for attainment of these no limit to the number of shares that can be registered to one
goals, the percentage of women in the first level of management shareholder. Only the persons listed in the share register are
under the Board of Executive Directors of BASF SE was at entitled to vote as shareholders. Listed shareholders may
12.1%. The percentage of women in management one level exercise their voting rights at the Annual Shareholders’ Meet-
below that was 7.3%. ing either personally, through a representative of their choice
We do not regard these deviations as meaningful, as BASF or through a company-appointed proxy authorized by the
views the further development and promotion of women as a shareholders to vote according to their instructions. There are
global duty independent of individual Group companies. We set neither voting caps to limit the number of votes a shareholder
ourselves ambitious goals for this and made further progress in may cast nor special voting rights. BASF has fully implement-
2016. The focus goes beyond gender quotas, and includes, for ed the principle of “one share, one vote.”
example, increasing international representation. All shareholders entered in the share register are entitled to
BASF will continue working on expanding the percentage of participate in the Annual Shareholders’ Meetings, to have their
women in its leadership team. The company is carrying out, and say concerning any item on the agenda and to request infor-
constantly enhancing, worldwide measures to this effect. mation about company issues insofar as this is necessary to
By the end of the first target-attainment period, new target make an informed judgment about the item on the agenda
figures were set for BASF SE: The Supervisory Board deter- under discussion. Registered shareholders are also entitled to
mined as a target figure for the Board of Executive Directors that file motions pertaining to proposals for resolutions made by
the Board of Executive Directors of BASF SE should continue to the Board of Executive Directors and Supervisory Board at the
have at least one female member. With eight current members Annual Shareholders’ Meeting and to contest resolutions of
of the Board of Executive Directors, this represents a proportion the Meeting and have them evaluated for their lawfulness in
of 12.5%. The Board of Executive Directors also decided on court.
target figures for the proportion of women in the two manage- Shareholders who hold at least €500,000 of the compa-
ment levels below the Board of Executive Directors of BASF SE: ny’s share capital, a quota corresponding to 390,625 shares,
Women are to make up 12.1% of the leadership level directly are furthermore entitled to request that additional items be
below the Board, and the level below that is to comprise 7.3% added to the agenda of the Annual Shareholders’ Meeting.
women. This corresponds to the status at the time these target
figures were determined. The deadline for achieving these new Implementation of the German Corporate
goals was set for December 31, 2021. Governance Code
The November 2015 Employee Participation Agreement relevant
to the composition of the Supervisory Board is available at
basf.com/en/governance
▪▪ BASF SE follows all recommendations of German
For more on women in executive positions in the BASF Group Corporate Governance Code
worldwide, see page 26
For more on the inclusion of diversity, including promotion of women, BASF advocates responsible corporate governance that
see the chapter on Working at BASF in the Management’s Report on
page 43 focuses on sustainably increasing the value of the company.
BASF SE follows all recommendations of the German
Shareholders’ rights Corporate Governance Code in its most recently revised ver-
sion of May 2015. In the same manner, BASF has followed
▪▪ Shareholders’ rights of co-administration and nearly all of the nonobligatory suggestions of the German
supervision at the Annual Shareholders’ Meeting Corporate Governance Code. We have not implemented the
▪▪ One share, one vote suggestion to enable shareholders to follow the proceedings
of the entire Annual Shareholders’ Meeting online. The Annual
Shareholders exercise their rights of co-administration and Shareholders’ Meeting is publicly accessible via online broad-
supervision at the Annual Shareholders’ Meeting, which cast until the end of the speech by the Chairman of the Board
usually takes place within the first five months of the business of Executive Directors. The subsequent discussion of items on
year. The Annual Shareholders’ Meeting elects half of the the agenda is not accessible online in order to preserve the
members of the Supervisory Board and, in particular, decides character of the Annual Shareholders’ Meeting as a meeting
on the formal discharge of the Board of Executive Directors attended by our shareholders on-site.
and the Supervisory Board, the distribution of profits, capital The joint Declaration of Conformity 2016 by the Board of Executive
Directors and Supervisory Board of BASF SE is rendered on page 150
measures, the authorization of share buybacks, changes to
For more on the Declaration of Conformity 2016, the implementation of
the Statutes and the selection of the auditor. the Code’s suggestions and the German Corporate Governance Code,
Each BASF SE share represents one vote. All of BASF SE’s see basf.com/en/governance
shares are registered shares. Shareholders are obliged to have
themselves entered with their shares into the company share
register and to provide the information necessary for registra-
tion in the share register according to the German Stock Cor-
poration Act. There are no registration restrictions and there is
132 Corporate Governance BASF Report 2016
Corporate governance report
Disclosure according to Section 315(4) of the shareholders. This can also be done by a credit institution
German Commercial Code (HGB) and the acquiring the new shares with the obligation to offer these to
explanatory report of the Board of Executive shareholders (indirect subscription right). The Board of Execu-
Directors according to Section 176(1) Sentence tive Directors is authorized to exclude the statutory subscrip-
1 of the German Stock Corporation Act (AktG) tion right of shareholders to a maximum amount of a total of
20% of share capital in certain exceptional cases that are
As of December 31, 2016, the subscribed capital of BASF SE defined in Section 5(8) of the BASF SE Statutes. This applies
was €1,175,652,728.32 divided into 918,478,694 registered in particular if, for capital increases in return for cash contribu-
shares with no par value. Each share entitles the holder to one tions, the issue price of the new shares is not substantially
vote at the Annual Shareholders’ Meeting. Restrictions on the lower than the stock market price of BASF shares and the total
right to vote or transfer shares do not exist. The same rights number of shares issued under this authorization is not more
and duties apply to all shares. According to the Statutes, than 10% of the stock of shares on the date of issue or, in
shareholders are not entitled to receive share certificates. eligible individual cases, to acquire companies or shares in
There are neither different classes of shares nor shares with companies in exchange for surrendering BASF shares.
preferential voting rights (golden shares). At the Annual Shareholders’ Meeting on April 27, 2012,
The appointment and dismissal of members of the Board the Board of Executive Directors was authorized to purchase
of Executive Directors is legally governed by the regulations in up to 10% of the shares existing at the time of the resolution
Article 39 of the SE Council Regulation, Section 16 of the SE (10% of the company’s share capital) until April 26, 2017. At
Implementation Act and Sections 84, 85 AktG as well as Arti- the discretion of the Board of Executive Directors, the pur-
cle 7 of the BASF SE Statutes. Accordingly, the Supervisory chase can take place on the stock exchange or by way of a
Board determines the number of members of the Board of public purchase offer directed to all shareholders. The Board
Executive Directors (at least two), appoints the members of of Executive Directors is authorized to sell the repurchased
the Board of Executive Directors, and can nominate a chair- company shares (a) through a stock exchange, (b) through a
person, as well as one or more vice chairpersons. The mem- public offer directed to all shareholders and – with the approval
bers of the Board of Executive Directors are appointed for a of the Supervisory Board – to third parties, (c) for a cash pay-
maximum of five years, and reappointments are permissible. ment that is not significantly lower than the stock exchange
The Supervisory Board can dismiss a member of the Board of price at the time of sale and (d) for contributions in kind, par-
Executive Directors if there is serious cause to do so. Serious ticularly in connection with the acquisition of companies, parts
cause includes, in particular, a gross breach of the duties of companies or shares in companies or in connection with
pertaining to the Board of Executive Directors and a vote of no mergers. In the cases specified under (c) and (d), the share-
confidence at the Annual Shareholders’ Meeting. The Supervi- holders’ subscription right is excluded. The Board of Executive
sory Board decides on appointments and dismissals accord- Directors is furthermore authorized to redeem the shares
ing to its own best judgment. bought back and to reduce the share capital by the proportion
According to Article 59(1) SE Council Regulation, amend- of the share capital accounted for by the redeemed shares.
ments to the Statutes of BASF SE require a resolution of the Bonds issued by BASF SE grant the bearer the right to
Annual Shareholders’ Meeting adopted with at least a two- request early repayment of the bonds at nominal value if one
thirds majority of the votes cast, provided that the legal provi- person – or several persons acting in concert – hold or acquire
sions applicable to German stock corporations under the a BASF SE share volume after the time of issuance which
German Stock Corporation Act do not stipulate or allow for corresponds to more than 50% of the voting rights (change of
larger majority requirements. In the case of amendments to control), and one of the rating agencies named in the bond’s
the Statutes, the Section 179(2) of the German Stock Corpo- terms and conditions withdraws its rating of BASF SE or the
ration Act requires a majority of at least three-quarters of the bond, or reduces it to a noninvestment grade rating within 120
subscribed capital represented. Pursuant to Article 12(6) of days after the change-of-control event.
the Statutes of BASF SE, the Supervisory Board is authorized In the event of a change of control, members of the Board
to resolve upon amendments to the Statutes that merely of Executive Directors shall, under certain additional condi-
concern their wording. This applies in particular to the adjust- tions, receive compensation (details of which are listed in the
ment of the share capital and the number of shares after the Compensation Report on page 144). A change of control is
redemption of repurchased BASF shares and after a new issue assumed when a shareholder informs BASF of a shareholding
of shares from the authorized capital. of at least 25% or the increase of such a holding. In addition,
Until May 1, 2019, the Board of Executive Directors of employees of BASF SE and its subsidiaries who are classed
BASF SE is empowered by a resolution passed at the Annual as senior executives will receive a severance payment if
Shareholders’ Meeting of May 2, 2014, to increase the sub- their contract of employment is terminated by BASF within
scribed capital – with the approval of the Supervisory Board – 18 months of the occurrence of a change of control, provided
by a total amount of €500 million through the issue of new the employee has not given cause for the termination. The
shares against cash or contributions in kind (authorized capi- employee whose service contract has been terminated in
tal). A right to subscribe to the new shares shall be granted to such a case will receive a maximum severance payment of
BASF Report 2016 Corporate Governance 133
Corporate governance report
1.5 times the annual salary (fixed component) depending on Information on the auditor
the number of months that have passed since the change-of-
control event. The Annual Shareholders’ Meeting of April 29, 2016, once
The remaining specifications stipulated in Section 315(4) again elected KPMG AG Wirtschaftsprüfungsgesellschaft as
HGB refer to situations that are not applicable to BASF SE. the auditor of the BASF Group Consolidated Financial State-
For more on bonds issued by BASF SE, see basf.com/en/investor/bonds ments and Separate Financial Statements of BASF SE for the
2016 business year, as well as for those reports’ correspond-
Directors’ and Officers’ liability insurance ing Management’s Reports. KPMG member firms also audit
the majority of companies included in the Consolidated Finan-
BASF SE has taken out liability insurance that covers the cial Statements. KPMG has been the continuous auditor of
activities of members of the Board of Executive Directors and BASF SE since the 2006 Financial Statements; the 2015
the Supervisory Board (D&O insurance). This policy provides Financial Statements marked the tenth annual report in a row
for the level of deductibles for the Board of Executive Directors audited by KPMG. For this reason, a public call to tender was
as prescribed by Section 93(2)(3) AktG and for the level of made to all auditors for the audit of the 2016 Consolidated and
deductibles for the Supervisory Board as recommended in Separate Financial Statements, in line with the E.U. Regulation
Section 3.8(3) of the German Corporate Governance Code. 537/2014 of April 16, 2014. Based on the results of the ten-
dering process, the Audit Committee recommended to the
Share ownership by Members of the Board of Supervisory Board that it once again propose KPMG for elec-
Executive Directors and the Supervisory Board tion. After completing the tendering process, KPMG can now
be proposed for election at the Annual Shareholders’ Meeting
No member of the Board of Executive Directors or the Super- as BASF’s auditor without further tendering processes up to
visory Board owns shares in BASF SE and related options or and including the 2024 business year. Hans-Dieter Krauß has
other derivatives that account for 1% or more of the share been the auditor responsible for the Consolidated Financial
capital. Furthermore, the total volume of BASF SE shares and Statements since auditing the 2010 Financial Statements.
related financial instruments held by members of the Board of Since the 2013 Financial Statements, the auditor responsible
Executive Directors and the Supervisory Board accounts for for the separate financial statements has been Alexander
less than 1% of the shares issued by the company. Bock.
The total fee paid to KPMG and auditing firms of the KPMG
Share dealings of the Board of Executive group by BASF SE and other BASF Group companies for
Directors and Supervisory Board (obligatory non-audit services, in addition to the auditing fee, was €1 mil-
reportable and publishable directors’ dealings lion in 2016. This represents around 5.7% of the fees for
under Article 19(1) of the E.U. Market Abuse auditing the financial statements.
Regulation 596/2014 (MAR)) For more information, see Note 33 of the Consolidated Financial
Statements on page 219
As legally stipulated by Article 19(1) MAR, all members of the
Board of Executive Directors and the Supervisory Board as
well as certain members of their families are required to dis-
close the purchase or sale of financial instruments of BASF SE
(e.g., shares, bonds, options, forward contracts, swaps) to the
Federal Financial Supervisory Authority (Bundesanstalt für
Finanzdienstleistungsaufsicht) and to the company if transac-
tions within the calendar year exceed the threshold of €5,000.
In 2016, a total of four purchases by members of the
Board of Executive Directors and the Supervisory Board and
members of their families subject to disclosure were reported
as Directors’ Dealings, involving between 417 and 2,660
BASF shares. The price per share was between €62.43 and
€67.88. The volume of the individual trades was between
€26,033.31 und €180,567.16. The disclosed share transac-
tions are published on the website of BASF SE.
For more on securities transactions reported in 2016, see
basf.com/en/governance/sharedealings
134 Corporate Governance BASF Report 2016
Compliance
Compliance
Code of Conduct More than 25,000 63 audits
Forms core of our Participants in Conducted internally
Compliance Program compliance training on compliance
Our Group-wide Compliance Program aims to ensure antitrust laws to human rights, labor and social standards,
adherence to legal regulations and the company’s internal conflicts of interest and trade control, and protection of data
guidelines. This topic has been integrated into our “We privacy.
create chemistry” strategy. Our employee Code of Conduct Abiding by compliance standards is the foundation of
firmly embeds these mandatory standards into day-to-day responsible leadership. This has been expressly embedded in
business. Members of the Board of Executive Directors are our values, where we state: “We strictly adhere to our compli-
also expressly obligated to follow these principles. ance standards.” We are convinced that compliance with these
standards will not only prevent the disadvantages associated
Compliance Program and Code of Conduct with violations, such as penalties and fines; we also view com-
pliance as the right path toward securing our company’s long-
▪▪ Compliance standards integrated into term success.
corporate values Our efforts are principally aimed at preventing violations
▪▪ Regular compliance training for employees from the outset. To this end, all employees are required within a
prescribed time frame to take part in basic compliance training,
Based on international standards, BASF’s Compliance Pro- refresher courses and special tutorials dealing with, for exam-
gram combines important laws and company-internal policies ple, antitrust legislation, taxes or trade control regulations.
– themselves exceeding legal requirements – with external Training takes place in different formats, including face-to-face
voluntary commitments to create a framework that regulates training, e-learning or workshops. The course materials and
how all BASF employees interact with business partners, offi- formats are constantly being updated. In total, more than
cials, colleagues and society. At the core of our Compliance 25,000 participants worldwide received around 40,000 hours
Program is the global, standardized Code of Conduct received of compliance training in 2016.
by every employee. All employees and managers are obligated For more on the BASF Code of Conduct, see
basf.com/code_of_conduct
to adhere to its guidelines, which describe our principles for
proper conduct and cover topics ranging from corruption and
BASF’s Code of Conduct
Protection of Company Property and
Property of Business Partners Protection of Data Privacy
Protection of Environment,
Gifts and Entertainment Health and Safety
Antitrust Legislation Imports and Exports
BASF’s C
ode of Conduct stipulates
how these topics are handled
Human Rights, Labor Corruption
and Social Standards
Conflicts of Interest Information Protection
and Insider Trading Laws
Money Laundering
BASF Report 2016 Corporate Governance 135
Compliance
Compliance culture at BASF regulations, into all cases of suspected misconduct that we
became aware of. Confirmed violations were penalized, up to
We firmly believe that for corporate responsibility to be a and including dismissal. This involved making sure that the
success, there must be an active culture of living these guide- necessary action was taken in accordance with standardized
lines within the company. This culture takes years to develop, company criteria.
and requires the consistent, reliable application of compliance BASF’s Corporate Audit department monitors adherence
standards. Because we introduced our Code of Conduct early to compliance principles, covering all areas in which compli-
on, these standards have already been firmly established and ance violations could occur. They check that employees
are undisputed. In our last Global Employee Survey, conduct- uphold regulations and make sure that the established pro-
ed in 2015, the vast majority of our employees confirmed that cesses, procedures and monitoring tools are appropriate and
their work environment places high value on proper conduct in sufficient to minimize potential risk or preclude violations in the
alignment with internal company guidelines and standards. first place. In 2016, 63 Group-wide audits of this kind were
Starting in 2015, we have now investigated all cases in which performed (2015: 92). The audits confirmed the effectiveness
the answer to the corresponding question showed unit- of the compliance management system. No irregularities were
specific anomalies, and held, for instance, additional semi- shown in the audit’s focus areas of antitrust and trade controls
nars or workshops as necessary. and embargo, nor was there a major need for action identified
beyond these topics.
Monitoring adherence to our Compliance Based on the Guideline on Business Partner Due Diligence
principles introduced in 2015, we monitor our business partners in sales
for potential compliance risks. This is done by means of a
▪▪ Central role of Chief Compliance Officer and checklist, a questionnaire distributed to business partners,
compliance officers and an internet-based analysis. The results are then docu-
▪▪ 56 external hotlines worldwide mented. Depending on the results, conclusions are drawn
▪▪ Numerous internal Compliance audits regarding whether and how to maintain the business relation-
ship. We furthermore expect all suppliers to know of and act in
BASF’s Chief Compliance Officer (CCO) reports directly to the accordance with our global Code of Conduct.
Board of Executive Directors and manages the implementation We support the United Nations’ Guiding Principles on
of our Compliance Management System, supported by 104 Business and Human Rights and are constantly working to
compliance officers worldwide. The CCO regularly reports to enhance our internal guidelines and processes in keeping with
the Board of Executive Directors on progress in the program’s these principles. For example, we introduced a new internal
implementation as well as on any significant findings. Further- guideline to respect international labor and social standards.
more, the CCO reports to the Supervisory Board’s Audit Outside of our company, as well, we support respect for hu-
Committee in at least one of its meetings each year on the man rights and the fight against corruption: We are, for
status of the Compliance Program as well as any major devel- example, a founding member of the United Nations Global
opments. In the event of significant incidents, the Audit Com- Compact. As a member of Transparency International
mittee is immediately informed by the Board of Executive Deutschland and the Partnering Against Corruption Initiative
Directors. (PACI) of the World Economic Forum, we assist in the imple-
We particularly encourage our employees to actively and mentation of these organizations’ objectives.
promptly seek guidance if in doubt. For this, they can consult For more on human rights and labor and social standards, see
basf.com/human_rights
not only their managers but also dedicated specialist depart-
For more on suppliers, see page 92 onward
ments and company compliance officers. We have also set up
56 external hotlines worldwide which our employees can turn
to anonymously. We make sure that all concerns are pro-
cessed and answered in a swift manner.
In 2016, 278 calls and emails were received by our exter-
nal hotlines (2015: 357). Concerns involved questions ranging
from personnel management and handling of company prop-
erty to information on the behavior of business partners or
human rights issues – such as labor and social standards. We
continued to observe increasing awareness when it came to
potential conflicts of interest. We launched case-specific
investigations, in accordance with applicable law and internal
136 Corporate Governance BASF Report 2016
Management and Supervisory Boards — Board of Executive Directors
Management and Supervisory Boards
Board of Executive Directors
There were eight members on the Board of Executive Directors of BASF SE as of December 31, 2016
Dr. Kurt Bock Dr. Harald Schwager
Chairman of the Board of Executive Directors Degree: Chemistry, 56 years old, 29 years at BASF
Degree: Business Administration, 58 years old, 26 years at BASF
Responsibilities: Construction Chemicals; Crop Protection; Bioscience
Responsibilities: Legal, Taxes, Insurance & Intellectual Property; Research; Region Europe
Corporate Development; Corporate Communications & Government
First appointed: 2008, Term expires: 2017
Relations; Senior Executive Human Resources; Investor Relations;
Compliance
First appointed: 2003, Term expires: 2021
Wayne T. Smith
Supervisory Board memberships (excluding internal memberships): Degrees: Chemical Engineering, Business Administration, 56 years old,
Fresenius Management SE (since May 13, 2016) 13 years at BASF
Responsibilities: Catalysts; Coatings; Performance Materials; Market &
Business Development, Site & Verbund Management North America;
Dr. Martin Brudermüller Regional Functions & Country Platforms North America
Vice Chairman of the Board of Executive Directors
First appointed: 2012, Term expires: 2020
Degree: Chemistry, 55 years old, 29 years at BASF
Responsibilities: Petrochemicals; Monomers; Intermediates;
Process Research & Chemical Engineering; Innovation Management;
Margret Suckale
Digitalization in Research & Development; Corporate Technology &
Degrees: Law, Business Administration, 60 years old, 8 years at BASF
Operational Excellence; BASF New Business
Responsibilities: Engineering & Maintenance; Environmental Protection,
First appointed: 2006, Term expires: 2021
Health & S
afety; European Site & Verbund Management; Human Resources
First appointed: 2011, Term expires: 2017
Dr. Hans-Ulrich Engel Comparable German and non-German controlling bodies:
Degree: Law, 57 years old, 29 years at BASF BASF Antwerpen N.V. (Chairwoman of the Administrative Council)
Responsibilities: Finance; Oil & Gas; Procurement; Supply Chain
Operations & Information Services; Corporate Controlling; Corporate Audit Changes as of May 13, 2017:
First appointed: 2008, Term expires: 2021
Following the Annual Shareholders’ Meeting on May 12, 2017,
Internal memberships as defined in Section 100(2) of the German
Stock Corporation Act: Margret Suckale and Dr. Harald Schwager will leave the Board of
Wintershall Holding GmbH (Chairman of the Supervisory Board) Executive Directors. The Supervisory Board will then appoint
Wintershall AG (Chairman of the Supervisory Board) Saori Dubourg and Dr. Markus Kamieth as new members of the
Comparable German and non-German controlling bodies: Board of Executive Directors:
Nord Stream AG (member of the Shareholders’ Committee)
Saori Dubourg
Degree: Business Administration, 45 years old, 20 years at BASF
Sanjeev Gandhi
Responsibilities: Construction Chemicals; Crop Protection; Bioscience
Degrees: Chemical Engineering, Business Administration, 50 years old,
Research; Region Europe
23 years at BASF
First appointed: 2017, Term expires: 2020
Responsibilities: Greater China & Functions Asia Pacific;
South & East Asia, ASEAN & Australia/New Zealand
First appointed: 2014, Term expires: 2018
Dr. Markus Kamieth
Degree: Chemistry, 46 years old, 18 years at BASF
Michael Heinz Responsibilities: Care Chemicals; Nutrition & Health; Performance
Chemicals; Advanced Materials & Systems Research; Region South America
Degree: Business Administration, 52 years old, 33 years at BASF
First appointed: 2017, Term expires: 2020
Responsibilities: Dispersions & Pigments; Care Chemicals;
Nutrition & Health; Performance Chemicals; Advanced Materials & Systems
Research; Region South America
Michael Heinz will take over the responsibilities of Margret
First appointed: 2011, Term expires: 2019
Suckale. In addition to his previous responsibilities, Sanjeev
Gandhi will also be responsible for Dispersions & Pigments.
BASF Report 2016 Corporate Governance 137
Management and Supervisory Boards — Supervisory Board
Supervisory Board
In accordance with the Statutes, the Supervisory Board of BASF SE comprises twelve members
The term of office of the Supervisory Board commenced follow- Franz Fehrenbach, Stuttgart, Germany
ing the Annual Shareholders’ Meeting on May 2, 2014, in which Chairman of the Supervisory Board of Robert Bosch GmbH
the shareholder representatives on the Supervisory Board were Member of the Supervisory Board since: January 14, 2008
Supervisory Board memberships:
elected. It terminates upon conclusion of the Annual Share
Robert Bosch GmbH (chairman)
holders’ Meeting which resolves on the discharge of members of
Stihl AG (vice chairman)
the Supervisory Board for the fourth complete financial year after Linde AG (member)
the term of office commenced; this is the Annual Shareholders’ Comparable German and non-German controlling bodies:
Meeting in 2019. The Supervisory Board comprises the following Stihl Holding AG & Co. KG (member of the Advisory Board)
members:
Francesco Grioli, Ronnenberg, Germany
Dr. Jürgen Hambrecht, Neustadt an der Weinstraße, Germany Regional manager of the Rhineland-Palatinate/Saarland branch of the
Chairman of the Supervisory Board of BASF SE Mining, Chemical and Energy Industries Union
Former Chairman of the Board of Executive Directors of BASF SE Member of the Supervisory Board since: May 2, 2014
(until May 2011) Supervisory Board memberships:
Member of the Supervisory Board since: May 2, 2014 Gerresheimer AG (vice chairman)
Supervisory Board memberships: Villeroy & Boch AG (member)
Fuchs Petrolub SE (chairman) Steag New Energies GmbH (vice chairman)
Trumpf GmbH & Co. KG (chairman) V & B Fliesen GmbH (member)
Daimler AG (member)
Comparable German and non-German controlling bodies:
Waldemar Helber, Otterbach, Germany
Nyxoah S.A. (nonexecutive director)
Vice Chairman of the Works Council of the Ludwigshafen site of BASF SE
Member of the Supervisory Board since: April 29, 2016
Michael Diekmann, Munich, Germany
Vice Chairman of the Supervisory Board of BASF SE
Anke Schäferkordt, Cologne, Germany
Former Chairman of the Board of Management of Allianz SE
Member of the Executive Board of Bertelsmann SE & Co. KGaA
Member of the Supervisory Board since: May 6, 2003 Co-CEO of RTL Group S.A.
Supervisory Board memberships: Chief Executive Officer of RTL Television GmbH
Fresenius Management SE (member) Member of the Supervisory Board since: December 17, 2010
Fresenius SE & CO. KGaA (vice chairman) Comparable German and non-German controlling bodies:
Linde AG (vice chairman) Métropole Télévision S.A. (member of the Supervisory Board)
Siemens AG (member)
Denise Schellemans, Brecht, Belgium
Robert Oswald, Altrip, Germany
Full-time trade union delegate
Vice Chairman of the Supervisory Board of BASF SE
Member of the Supervisory Board since: January 14, 2008
Chairman of the Works Council of the Ludwigshafen site of BASF SE
and Chairman of BASF’s Joint Work Council
Michael Vassiliadis, Hannover, Germany
Member of the Supervisory Board since: October 1, 2000
Chairman of the Mining, Chemical and Energy Industries Union
Member of the Supervisory Board since: August 1, 2004
Ralf-Gerd Bastian, Neuhofen, Germany
Supervisory Board memberships:
Member of the Works Council of the Ludwigshafen site of BASF SE
K+S Aktiengesellschaft (vice chairman)
Member of the Supervisory Board since: May 6, 2003
Steag GmbH (vice chairman)
Evonik Industries AG (vice chairman until May 18, 2016)
Dame Alison Carnwath DBE, Exeter, England RAG AG (vice chairman)
Senior Advisor Evercore Partners RAG DSK AG (vice chairman)
Member of the Supervisory Board since: May 2, 2014
Comparable German and non-German controlling bodies: The following member left the Supervisory
Zurich Insurance Group AG (independent member of the Administrative Council) Board on April 29, 2016:
Zürich Versicherungs-Gesellschaft AG (independent member of the
Administrative Council)
Land Securities Group plc (nonexecutive Chairman of the Board of Directors)
Wolfgang Daniel, Heidelberg, Germany
PACCAR Inc. (independent member of the Board of Directors)
Vice Chairman of the Works Council of the Ludwigshafen site of BASF SE
Coller Capital Ltd. (nonexecutive member of the Board of Directors)
Member of the Supervisory Board since: September 9, 1996
Prof. Dr. François Diederich, Dietikon, Switzerland
Professor at the Swiss Federal Institute of Technology, Zurich, Switzerland
Member of the Supervisory Board since: May 19, 1998
138 Corporate Governance BASF Report 2016
Compensation report
Compensation report
This report outlines the main principles of the compensa- The compensation components are shown in
tion for the Board of Executive Directors and discloses the detail below:
amount and structure of the compensation of each Board
member. Furthermore, it provides information on end-of- 1. The fixed salary is a set amount of yearly compensation
service undertakings with respect to Board members, as paid out in even installments. It is regularly reviewed by the
well as information on the compensation of Supervisory Supervisory Board and adjusted, if necessary.
Board members.
2. The actual annual variable compensation (variable
Compensation of the Board of Executive bonus) is based on the performance of the entire Board of
Directors Executive Directors and the return on assets. The return on
assets is also used to determine the variable compensation of
This report meets the disclosure requirements of the all other employee groups.
German Commercial Code, supplemented by the additional In order to assess the sustainable performance of the
requirements based on the German Act on Disclosure of Board of Executive Directors, each year the Supervisory Board
Management Board Remuneration (Vorstandsvergütungs-
sets a target agreement with the entire Board of Executive
Offenlegungsgesetz) as well as the German Act on the Appro- Directors that primarily contains medium and long-term goals.
priateness of Management Board Remuneration (Gesetz zur The Supervisory Board assesses the goal achievement of
Angemessenheit der Vorstandsvergütung), and is aligned with the current year and the previous two years. A performance
the recommendations of the German Corporate Governance factor with a value between 0 and 1.5 is determined on the
Code (GCGC) in its version of May 5, 2015. basis of the goal achievement ascertained by the Supervisory
Based on a proposal by the Personnel Committee, the Board. The variable bonus for the prior fiscal year is payable
Supervisory Board determines the amount and structure of after the Annual Shareholders’ Meeting.
compensation of members of the Board of Executive Directors. Board members, like other employee groups, may contrib-
The amount and structure of compensation is determined ute a portion of their annual variable bonus into a deferred
by the company’s size, complexity and financial position, as compensation program. For members of the Board of Execu-
well as the performance of the Board of Executive Directors. tive Directors, as well as for all other senior executives of the
Internal and external appropriateness of the Board’s compen- BASF Group in Germany, the maximum amount that can be
sation is reviewed by external auditors on a regular basis. contributed to this program is €30,000. Board members have
Globally operating companies based in Europe serve as an taken advantage of this offer to varying degrees.
external reference. For internal comparison, compensation is
considered in total as well as over time, especially for senior 3. A share-price-based, long-term incentive (LTI) pro-
executives. gram exists for members of the Board of Executive Directors.
For more on the Supervisory Board and its committees, see page 137 It is also offered to all other senior executives of BASF Group.
and from page 147 onward
Members of the Board of Executive Directors are subject to a
stricter set of rules than are contained in the general program
Principles conditions: They are required to participate in the program
with at least 10% of their variable bonus. This mandatory
The compensation of the Board of Executive Directors is investment consisting of BASF shares is subject to a holding
designed to promote sustainable corporate development. It period of four years. For any additional voluntary investment of
is marked by a pronounced variability in relation to the perfor- up to 20% of the variable bonus, the general holding period of
mance of the Board of Executive Directors and BASF Group’s two years applies. Members of the Board of Executive Direc-
return on assets. tors may only exercise their options at least four years after
they have been granted (vesting period). This compensation
The compensation of the Board of Executive component is limited, too, by the structure of the LTI program
Directors comprises: as well as by the upper limit on the options’ exercise value.
Due to the multiple-year exercise period, it can occur that
1. Fixed salary exercise gains from several LTI program years accumulate
2. Annual variable compensation inside of one year; there can also be years without any exer-
3. Share-price-based, long-term incentive (LTI) program cise gains.
4. Nonmonetary compensation and other additional compen- For more on share ownership by members of the Board of Executive
Directors, see page 133
sation
For more on the LTI program, see page 45 and from page 216 onward
5. Company pension benefits
BASF Report 2016 Corporate Governance 139
Compensation report
4. Included in nonmonetary compensation and other The pension units also include survivor benefits. Upon the
additional compensation (fringe benefits) are the following: death of an active or former member of the Board, the surviv-
delegation allowances, accident insurance premiums and ing spouse receives a survivor pension amounting to 60% of
other similar benefits, and benefits from security measures the Board member’s pension entitlement. The orphan pension
provided by the company. The members of the Board did not amounts to 10% for each half-orphan, 33% for an orphan,
receive loans or advances from the company in 2016. 25% each for two orphans and 20% each for three or more
The members of the Board are covered by a directors’ and orphans of the pension entitlement of the deceased (former)
officers’ liability insurance (D&O insurance) concluded by the Board member. Total survivor benefits may not exceed 75% of
company, which includes a deductible. the Board member’s pension entitlement. If the survivor pen-
For more on the D&O insurance of the Board of Executive Directors, sions exceed the upper limit, they will be proportionately
see page 133
reduced.
Board members are members of the BASF Pensionskasse
5. As part of the pension benefits granted to the Board of VVaG, as are generally all employees of BASF SE. Contribu-
Executive Directors (Board Performance Pension), company tions and benefits are determined by the Statutes of the BASF
pension benefits are intended to accrue annual pension units. Pensionskasse VVaG and the General Conditions of Insurance.
The method used to determine the amount of the pension
benefits generally corresponds to that used for the other Amount of total compensation
senior executives of the BASF Group in Germany. The method
is designed such that both the performance of the company The tables on pages 140 to 143 show the granted and allo
and the progression of the individual Board member’s career cated compensation as well as service cost of each member
significantly affect the pension entitlement. of the Board of Executive Directors in accordance with Section
The annual pension benefits accruing to Board members 4.2.5(3) of the German Corporate Governance Code (GCGC)
in a given reporting year (pension unit) are composed of a fixed in its version of May 5, 2015.
and a variable component. The fixed component is calculated
by multiplying the annual fixed salary above the Social Security Compensation granted in accordance with the German
Contribution Ceiling by 32% (contribution factor). The variable Corporate Governance Code (GCGC)
component of the pension unit is the result of multiplying the
fixed component with a factor that is dependent on the return The table “Compensation granted in accordance with GCGC”
on assets in the reporting year and the performance factor, shows: fixed salary, fringe benefits, annual variable target
which is decisive for the variable bonus. The amount resulting compensation, LTI program measured at fair value at the grant
from the fixed and the variable component is converted into a date, and service cost. The individual compensation compo-
pension unit (lifelong pension) using actuarial factors based on nents are supplemented by individually attainable minimum
an actuarial interest rate (5%), the probability of death, invalid- and maximum compensation.
ity and bereavement according to Heubeck Richttafeln, 2005G Furthermore, a reconciliation statement for total compen-
(modified), and an assumed pension increase (at least 1% per sation to be reported is provided below the table “Compensa-
annum). tion granted in accordance with GCGC” due to the disclosures
The sum of the pension units accumulated over the report- required by Section 314(1)(6a) of the German Commercial
ing years determines the respective Board member’s pension Code (HGB) in connection with the German Accounting Stan-
benefit in the event of a claim. This is the amount that is pay- dard Number 17 (GAS 17).
able upon retirement. Pension benefits take effect at the end of
service after completion of the member’s 60th year of age, or
on account of disability or death. Pension payments are
reviewed on a regular basis and adjusted by at least 1% each
year.
140 Corporate Governance BASF Report 2016
Compensation report
Compensation granted in accordance with the German Corporate Governance Code (GCGC) (thousand €)
Dr. Kurt Bock Dr. Martin Brudermüller
Chairman of the Board of Executive Directors Vice Chairman of the Board of Executive Directors
2015 2016 2016 2016 2015 2016 2016 2016
(Min) (Max) (Min) (Max)
Fixed salary 1,300 1,300 1,300 1,300 8661 865 865 865
Fringe benefits 215 68 68 68 3892 2392 2392 2392
Total 1,515 1,368 1,368 1,368 1,255 1,104 1,104 1,104
Annual variable target compensation 2,600 2,600 0 4,000 1,729 1,729 0 2,660
Multiple-year variable compensation 884 844 0 3,069 588 561 0 2,040
LTI program 2015 (2015–2023) 884 – – – 588 – – –
LTI program 2016 (2016–2024) – 844 0 3,069 – 561 0 2,040
Total 4,999 4,812 1,368 8,437 3,572 3,394 1,104 5,804
Service cost 605 537 537 537 529 471 471 471
Total compensation in accordance with GCGC 5,604 5,349 1,905 8,974 4,101 3,865 1,575 6,275
Reconciliation reporting of total compensation
pursuant to Section 314(1)(6a) HGB in
connection with GAS 17
less granted annual variable target
compensation (2,600) (2,600) (1,729) (1,729)
plus allocated actual annual variable
compensation 2,046 2,061 1,361 1,371
less service cost (605) (537) (529) (471)
Total compensation 4,445 4,273 3,204 3,036
Dr. Harald Schwager Wayne T. Smith
2015 2016 2016 2016 2015 2016 2016 2016
(Min) (Max) (Min) (Max)
Fixed salary 650 650 650 650 6681 8281 8281 8281
Fringe benefits 155 83 83 83 2562 1062 1062 1062
Total 805 733 733 733 924 934 934 934
Annual variable target compensation 1,300 1,300 0 2,000 1,300 1,300 0 2,000
Multiple-year variable compensation 442 422 0 1,534 519 517 0 1,534
LTI program 2015 (2015–2023) 442 – – – 519 – – –
LTI program 2016 (2016–2024) – 422 0 1,534 – 517 0 1,534
Total 2,547 2,455 733 4,267 2,743 2,751 934 4,468
Service cost 399 359 359 359 478 445 445 445
Total compensation in accordance with GCGC 2,946 2,814 1,092 4,626 3,221 3,196 1,379 4,913
Reconciliation reporting of total compensation
pursuant to Section 314(1)(6a) HGB in
connection with GAS 17
less granted annual variable target
compensation (1,300) (1,300) (1,300) (1,300)
plus allocated actual annual variable
compensation 1,023 1,031 1,023 1,031
less service cost (399) (359) (478) (445)
Total compensation 2,270 2,186 2,466 2,482
1
Payment was made partly in local currency abroad based on a theoretical net salary in Germany.
2
Includes payments to cover additional costs of transfers, such as assumption of prevailing local rental fees.
BASF Report 2016 Corporate Governance 141
Compensation report
Dr. Hans-Ulrich Engel Sanjeev Gandhi Michael Heinz
2015 2016 2016 2016 2015 2016 2016 2016 2015 2016 2016 2016
(Min) (Max) (Min) (Max) (Min) (Max)
6621 650 650 650 5141 4551 4551 4551 650 650 650 650
412 2
92 92 92 598 2
978 2
978 2
9782 150 84 84 84
1,074 742 742 742 1,112 1,433 1,433 1,433 800 734 734 734
1,300 1,300 0 2,000 1,300 1,300 0 2,000 1,300 1,300 0 2,000
442 422 0 1,534 171 422 0 1,534 442 422 0 1,534
442 – – – 171 – – – 442 – – –
– 422 0 1,534 – 422 0 1,534 – 422 0 1,534
2,816 2,464 742 4,276 2,583 3,155 1,433 4,967 2,542 2,456 734 4,268
402 363 363 363 489 445 445 445 421 373 373 373
3,218 2,827 1,105 4,639 3,072 3,600 1,878 5,412 2,963 2,829 1,107 4,641
(1,300) (1,300) (1,300) (1,300) (1,300) (1,300)
1,023 1,031 1,023 1,031 1,023 1,031
(402) (363) (489) (445) (421) (373)
2,539 2,195 2,306 2,886 2,265 2,187
Margret Suckale
2015 2016 2016 2016
(Min) (Max)
650 650 650 650
80 58 58 58
730 708 708 708
1,300 1,300 0 2,000
442 422 0 1,534
442 – – –
– 422 0 1,534
2,472 2,430 708 4,242
326 309 309 309
2,798 2,739 1,017 4,551
(1,300) (1,300)
1,023 1,031
(326) (309)
2,195 2,161
1
Payment was made partly in local currency abroad based on a theoretical net salary in Germany.
2
Includes payments to cover additional costs of transfers, such as assumption of prevailing local rental fees.
142 Corporate Governance BASF Report 2016
Compensation report
The table below shows the options granted to the Board of
Executive Directors on July 1 of both reporting years.
Number of options granted
2016 2015
Dr. Kurt Bock 35,108 36,248
Dr. Martin Brudermüller 23,344 24,104
Dr. Hans-Ulrich Engel 17,552 18,124
Sanjeev Gandhi 17,552 7,000
Michael Heinz 17,552 18,124
Dr. Harald Schwager 17,552 18,124
Wayne T. Smith 17,552 18,124
Margret Suckale 17,552 18,124
Total 163,764 157,972
Compensation allocated in accordance with the German
Corporate Governance Code (GCGC)
The “Compensation allocated in accordance with the GCGC”
shown for 2015 and 2016 is comprised of the fixed and
variable compensation components actually allocated, plus
the service cost calculated for each member of the Board of
Executive Directors in the reporting years even though this
does not actually represent payment in the narrower sense.
Compensation allocated in accordance with the German Corporate Governance Code (GCGC) (thousand €)
Dr. Kurt Bock Dr. Martin Brudermüller Dr. Hans-Ulrich Engel
Chairman of the Board of Vice Chairman of the Board
Executive Directors of Executive Directors
2016 2015 2016 2015 2016 2015
Fixed salary 1,300 1,300 865 8662 650 6622
Fringe benefits 68 215 2393 3893 92 4123
Total 1,368 1,515 1,104 1,255 742 1,074
Actual annual variable compensation1 2,061 2,046 1,371 1,361 1,031 1,023
Multiple-year variable compensation 4,3864 2,6835 1,657 – – 2,0715
LTI program 2007 (2007–2015) – 2,6835 – – – 2,0715
LTI program 2008 (2008–2016) 4,3864 – – – – –
LTI program 2009 (2009–2017) – – – – – –
LTI program 2010 (2010–2018) – – 1,657 – – –
LTI program 2011 (2011–2019) – – – – – –
LTI program 2012 (2012–2020) – – – – – –
Total 7,815 6,244 4,132 2,616 1,773 4,168
Service cost 537 605 471 529 363 402
Total compensation in accordance with GCGC 8,352 6,849 4,603 3,145 2,136 4,570
1
The basis for the allocated actual annual variable compensation is the return on assets adjusted for special items and the performance factor. This includes contributions made to the
deferred compensation program.
2
Payment was made partly in local currency abroad based on a theoretical net salary in Germany.
3
Includes payments to cover additional costs of transfers, such as assumption of prevailing local rental fees.
4
At the end of the regular term of the LTI program 2008, exercise gains which were realized in 2012 or 2010 were allocated to Dr. Kurt Bock and Wayne T. Smith in 2016 in accordance
with the special conditions of the U.S. LTI program.
5
At the end of the regular term of the LTI program 2007, exercise gains which were realized in 2009, 2012 or 2013 were allocated to Dr. Kurt Bock, Dr. Hans-Ulrich Engel and
Wayne T. Smith in 2015 in accordance with the special conditions of the U.S. LTI program.
BASF Report 2016 Corporate Governance 143
Compensation report
Compensation allocated in accordance with the German Corporate Governance Code (GCGC) (thousand €)
Sanjeev Gandhi Michael Heinz Dr. Harald Schwager
2016 2015 2016 2015 2016 2015
Fixed salary 4552 5142 650 650 650 650
Fringe benefits 9783 5983 84 150 83 155
Total 1,433 1,112 734 800 733 805
Actual annual variable compensation1 1,031 1,023 1,031 1,023 1,031 1,023
Multiple-year variable compensation – – – – 1,569 –
LTI program 2007 (2007–2015) – – – – – –
LTI program 2008 (2008–2016) – – – – – –
LTI program 2009 (2009–2017) – – – – – –
LTI program 2010 (2010–2018) – – – – 1,569 –
LTI program 2011 (2011–2019) – – – – – –
LTI program 2012 (2012–2020) – – – – – –
Total 2,464 2,135 1,765 1,823 3,333 1,828
Service cost 445 489 373 421 359 399
Total compensation in accordance with GCGC 2,909 2,624 2,138 2,244 3,692 2,227
Wayne T. Smith Margret Suckale
2016 2015 2016 2015
Fixed salary 8282 6682 650 650
Fringe benefits 1063 2563 58 80
Total 934 924 708 730
Actual annual variable compensation1 1,031 1,023 1,031 1,023
Multiple-year variable compensation 7984 1515 527 –
LTI program 2007 (2007–2015) – 1515 – –
LTI program 2008 (2008–2016) 7984 – – –
LTI program 2009 (2009–2017) – – – –
LTI program 2010 (2010–2018) – – 527 –
LTI program 2011 (2011–2019) – – – –
LTI program 2012 (2012–2020) – – – –
Total 2,763 2,098 2,266 1,753
Service cost 445 478 309 326
Total compensation in accordance with GCGC 3,208 2,576 2,575 2,079
1
The basis for the allocated actual annual variable compensation is the return on assets adjusted for special items and the performance factor. This includes contributions made to the
deferred compensation program.
2
Payment was made partly in local currency abroad based on a theoretical net salary in Germany.
3
Includes payments to cover additional costs of transfers, such as assumption of prevailing local rental fees.
4
At the end of the regular term of the LTI program 2008, exercise gains which were realized in 2012 or 2010 were allocated to Dr. Kurt Bock and Wayne T. Smith in 2016 in accordance
with the special conditions of the U.S. LTI program.
5
At the end of the regular term of the LTI program 2007, exercise gains which were realized in 2009, 2012 or 2013 were allocated to Dr. Kurt Bock, Dr. Hans-Ulrich Engel and
Wayne T. Smith in 2015 in accordance with the special conditions of the U.S. LTI program.
Accounting valuation of multiple-year variable of the LTI programs, while taking into account the terms and
compensation (LTI programs) conditions of the program.
The expenses for 2016 relating to all options issued were
The options granted resulted in an expense in 2016. This as follows: Dr. Kurt Bock €5,000 thousand (2015: expense of
expense refers to the total of all options from the LTI programs €1,058 thousand); Dr. Martin Brudermüller €4,052 thousand
2008 to 2016 and is calculated as the difference in the value of (2015: expense of €788 thousand); Dr. Hans-Ulrich Engel
the options on December 31, 2016, compared with the value €4,011 thousand (2015: expense of €660 thousand); Sanjeev
on December 31, 2015, considering the options exercised and Gandhi €156 thousand (2015: expense of €17 thousand);
granted in 2016. The value of the options is based primarily on Michael Heinz €2,423 thousand (2015: expense of €517 thou-
the development of the BASF share price and its relative per- sand); Dr. Harald Schwager €4,182 thousand (2015: expense
formance compared with the benchmark index specified for of €642 thousand); Wayne T. Smith €1,872 thousand
the LTI programs 2008 to 2016. (2015: expense of €616 thousand); and Margret Suckale
The expenses reported below are purely accounting figures €2,613 thousand (2015: expense of €419 thousand).
which do not equate with the allocated actual gains should For more on the LTI program, see page 45 and from page 216 onward
options be exercised. Each member of the Board may decide
individually on the timing and scope of the exercise of options
144 Corporate Governance BASF Report 2016
Compensation report
Pension benefits business year. If the appointment to the Board of Executive
Directors is prematurely terminated as the result of a change-
The values for service cost incurred in 2016 contain service of-control event, the payments may not exceed 150% of the
cost for BASF Pensionskasse VVaG and Board Performance severance compensation cap.
Pension. Service cost for the members of the Board of Execu-
tive Directors is shown individually in the tables “Compensation Former members of the Board of Executive
granted in accordance with GCGC” and “Compensation allo- Directors
cated in accordance with GCGC.”
The present value of pension benefits (defined benefit Total compensation for previous Board members and their
obligation) is an accounting figure for the entitlements that the surviving dependents amounted to €15.9 million in 2016
Board members have accumulated in their years of service at (2015: €12.1 million1). This figure also contains payments that
BASF. The defined benefit obligations up to and including previous Board members have themselves financed through
2016 were as follows: Dr. Kurt Bock €18,931 thousand (2015: the deferred compensation program and the expense or gain
€15,684 thousand); Dr. Martin Brudermüller €15,929 thou- for 2016 relating to options that previous members of the
sand (2015: €13,148 thousand); Dr. Hans-Ulrich Engel Board still hold from the time of their active service period.
€10,968 thousand (2015: €9,068 thousand); Sanjeev Gandhi The continuation of the options that have not yet been
€2,409 thousand (2015: €1,588 thousand); Michael Heinz exercised at the time of retirement, along with the continuation
€10,229 thousand (2015: €8,226 thousand); Dr. Harald of the associated holding period for individual investment in
Schwager €11,096 thousand (2015: €9,157 thousand); BASF shares under the conditions of the program, is intended
Wayne T. Smith €3,210 thousand (2015: €2,355 thousand); in order to particularly emphasize how sustainability is incor-
and Margret Suckale €4,315 thousand (2015: €3,518 thou- porated into the compensation for the Board members.
sand). Pension provisions for previous Board members and their
surviving dependents amounted to €150.4 million (2015:
End-of-service benefits €144.7 million2).
In the event that a member of the Board of Executive Directors Compensation of Supervisory Board members
retires from employment before the age of 60, either because
their appointment was not extended or was revoked for an The disclosure of compensation of the Supervisory Board is
important reason, they are entitled to pension benefits if they based on the German Commercial Code and is aligned with
have served on the Board for at least ten years or if the time the recommendations of the German Corporate Governance
needed to reach legal retirement age is less than ten years. Code (GCGC). The compensation of the Supervisory Board is
The company is entitled to offset compensation received for regulated by the Statutes of BASF SE passed by the Annual
any other work done against pension benefits until the legal Shareholders’ Meeting.
retirement age is reached. Each member of the Supervisory Board receives an annu-
The following applies to end of service due to a change- al fixed compensation of €60,000 and a performance-related
of-control event: A change-of-control event, in terms of this variable compensation for each full €0.01 by which the earn-
provision, occurs when a shareholder informs BASF of a ings per share of the BASF Group, as declared in the BASF
shareholding of at least 25%, or the increase of such a holding. Group Consolidated Financial Statements for the year for
If a Board member’s appointment is revoked within one year which the remuneration is paid, exceeds the minimum earn-
following a change-of-control event, the Board member will ings per share. For the 2016 business year, minimum earnings
receive the contractually agreed payments for the remaining per share amounted to €1.75 (2015: €1.70). The perfor-
contractual term of office as a one-off payment (fixed salary mance-related variable remuneration is €800 for each €0.01 of
and annual variable target compensation). The Board member earnings per share up to an earnings per share of €2.50, €600
may also receive the fair value of the option rights acquired in for each further €0.01 of earnings per share up to an earnings
connection with the LTI program within a period of three per share of €3.00, and €400 for each €0.01 beyond this. The
months or may continue to hold the existing rights under the minimum earnings per share and the corresponding thresh-
terms of the program. For the determination of the accrued olds shall increase by €0.05 for each subsequent business
pension benefits from the Board Performance Pension, year. The performance-related variable compensation is limit-
the time up to the regular expiry of office is taken into consid- ed to a maximum amount of €120,000.
eration. Based on the earnings per share of €4.42 published in the
There is a general limit on severance pay (severance pay- BASF Group Consolidated Financial Statements 2016, the
ment cap) for all Board members. Accordingly, payments performance-related compensation reached the maximum
made to a Board member upon premature termination of their amount of €120,000 (2015: €120,000).
contract, without serious cause, may not exceed the value of The chairman of the Supervisory Board receives two-and-
two years’ compensation, including fringe benefits, nor com- a-half times and a vice chairman one-and-a-half times the
pensate more than the remaining term of the contract. The compensation of an ordinary member. Members of the Super-
severance payment cap is to be calculated on the basis of the visory Board who are members of a committee, except for the
total compensation for the past business year and, if appropri- Nomination Committee, receive a further fixed compensation
ate, also the expected total compensation for the current for this purpose in the amount of €12,500. For the Audit
1
Also includes the pro rata temporis compensation of Dr. Andreas Kreimeyer up to his departure from the Board of Executive Directors on April 30, 2015.
2
Also includes the defined benefit obligations provided to Dr. Andreas Kreimeyer, up to and including December 31, 2015.
BASF Report 2016 Corporate Governance 145
Compensation report
Committee, the further fixed compensation is €50,000. The of the duties of the members of the Supervisory Board in the
chairman of a committee shall receive twice and a vice chair- cover of a directors’ and officers’ liability insurance (D&O insur-
man one-and-a-half times the further fixed compensation. ance) concluded by it, which includes a deductible.
The company reimburses members of the Supervisory For more on the D&O insurance of the Supervisory Board, see page 133
Board for out-of-pocket expenses and value-added tax to be
paid with regard to their activities as members of the Super Total compensation of the Supervisory Board for activities in
visory Board or of a committee. The company further grants 2016, including attendance fees, was around €3 million (2015:
the members of the Supervisory Board a fee of €500 for around €3 million). The compensation of the individual Super-
attending a meeting of the Supervisory Board or one of its visory Board members was as follows.
committees to which they belong and includes the performance
Compensation of the Supervisory Board of BASF SE (thousand €)
Performance- Compensation for
related variable committee
Fixed salary compensation memberships Total compensation
2016 2015 2016 2015 2016 2015 2016 2015
Dr. Jürgen Hambrecht, Chairman1, 5 150.0 150.0 300.0 300.0 25.0 31.3 475.0 481.3
Michael Diekmann, Vice Chairman2, 6 90.0 90.0 180.0 180.0 12.5 17.2 282.5 287.2
Robert Oswald, Vice Chairman2, 7 90.0 90.0 180.0 180.0 12.5 15.6 282.5 285.6
Ralf-Gerd Bastian4 60.0 60.0 120.0 120.0 50.0 50.0 230.0 230.0
Dame Alison Carnwath DBE3, 7 60.0 60.0 120.0 120.0 100.0 103.1 280.0 283.1
Wolfgang Daniel, Supervisory Board member
until April 29, 2016 20.0 60.0 40.0 120.0 – – 60.0 180.0
Prof. Dr. François Diederich 60.0 60.0 120.0 120.0 – – 180.0 180.0
Franz Fehrenbach4 60.0 60.0 120.0 120.0 50.0 50.0 230.0 230.0
Francesco Grioli 60.0 60.0 120.0 120.0 – – 180.0 180.0
Waldemar Helber, Supervisory Board member
since April 29, 2016 45.0 – 90.0 – – – 135.0 –
Anke Schäferkordt 60.0 60.0 120.0 120.0 – – 180.0 180.0
Denise Schellemans 60.0 60.0 120.0 120.0 – – 180.0 180.0
Michael Vassiliadis2, 4, 7 60.0 60.0 120.0 120.0 62.5 65.6 242.5 245.6
Total 875.0 870.0 1,750.0 1,740.0 312.5 332.8 2,937.5 2,942.8
1
Chairman of the Personnel Committee 2
Member of the Personnel Committee 3
Chairman of the Audit Committee 4
Member of the Audit Committee
5
Chairman of the Strategy Committee 6
Vice Chairman of the Strategy 7
Member of the Strategy Committee
(since October 1, 2015) Committee (since October 1, 2015) (since October 1, 2015)
Compensation for Supervisory Board membership and mem- CHF 38,400 (2016: approximately €35,200; 2015: approxi-
bership of Supervisory Board committees is payable after the mately €36,000) for consulting work in the area of chemical
Annual Shareholders’ Meeting, which approves the Consoli- research based on a consulting contract approved by the
dated Financial Statements upon which the variable compen- Supervisory Board.
sation is based. Accordingly, compensation relating to the Beyond this, no other Supervisory Board members
year 2016 will be paid following the Annual Shareholders’ received any compensation in 2016 for services rendered
Meeting on May 12, 2017. personally, in particular, the rendering of advisory and agency
In 2016, as in 2015, the company paid the Super- services.
visory Board member Prof. Dr. François Diederich a total of For more on share ownership by members of the Supervisory Board,
see page 133
146 Corporate Governance BASF Report 2016
Report of the Supervisory Board
Report of the Supervisory Board
prospects for the company and its individual business areas
with the Board of Executive Directors. It was convinced of the
lawfulness, expediency and propriety of the Board of Executive
Director’s company leadership.
The Chairman of the Board of Executive Directors and the
Chairman of the Supervisory Board were in regular contact
outside of Supervisory Board meetings, as well. The former
promptly informed the latter of current developments and
significant issues. The Supervisory Board was always involved
at an early stage in decisions of major importance. The Super
visory Board passed resolutions on the individual measures
that required the approval of the Supervisory Board. In the
2016 business year, this pertained to the authorization of the
Chemetall acquisition. With this transaction, BASF has added
the surface treatment business area to its Coatings division.
Supervisory Board meetings
The Supervisory Board held five meetings in the 2016 report-
ing year. With the exception of one meeting at which one
The Supervisory Board’s work in 2016 was marked by several member of the Supervisory Board was absent due to illness,
events and topics that were, in various respects, both weighty all Supervisory Board members attended all Supervisory
and significant – such as the explosion at the Ludwigshafen Board meetings in 2016. The members of the Supervisory
site, changes in the chemical industry due to the announce- Board elected by shareholders and those elected by the
ment of major mergers and acquisitions that impacted BASF’s employees prepared for the meetings in separate preliminary
strategic development, and long-term succession planning for discussions.
the composition of the Board of Executive Directors. An individual overview of meeting attendance has been made available
on the company website at:
The Supervisory Board faced these challenges with a full basf.com/governance/supervisoryboard/meetings
sense of responsibility and supported the Board of Executive
Directors’ activities, especially in coping with the explosion, A significant component of all Supervisory Board meetings was
and advised the Board of Executive Directors in its delibera- the Board of Executive Directors’ reports on the current busi-
tions on BASF’s strategic further development in an evolving ness situation with detailed information on sales and earnings
industry environment. growth, as well as on opportunities and risks for business devel-
opment, the status of important current and planned investment
Monitoring and consultation in an ongoing projects, developments on the capital markets, and significant
dialog with the Board of Executive Directors managerial measures taken by the Board of Executive Directors
in addition to innovation projects. In its meetings, the Super
In 2016, the Supervisory Board of BASF SE exercised its duties visory Board additionally discussed the further development of
as required by law and the Statutes with the utmost care. It the BASF Group’s business activities through acquisitions,
regularly monitored the management of the Board of Executive divestitures and investment projects. Significant consultation
Directors and provided advice on the company’s strategic topics included the acquisition of Chemetall with the entrance
development and important individual measures, about which into the surface treatment business, the divestiture of the indus-
the Supervisory Board was regularly and thoroughly informed trial coatings business, the sale of the OLED patent portfolio,
by the Board of Executive Directors. This occurred both during the acquisition of Henkel’s western European building material
and outside of the meetings of the Supervisory Board and its business for professional users, and the establishment of a joint
committees in the form of written and oral reports on, for exam- venture with Avantium for the production of furandicarboxylic
ple, all of the major financial KPIs of the BASF Group and its acid (FDCA) from renewable resources.
segments, the economic situation in the main volumes and Important focus points of the Supervisory Board’s consulta-
procurement markets, and on deviations in business develop- tion topics over the entire business year centered on develop-
ments from original plans. Furthermore, the Supervisory Board ments in the chemical industry as a result of announced mergers
tackled fundamental questions of corporate planning, including and acquisitions, such as the DOW and DuPont merger;
financial, investment, sales volumes and personnel planning, as the acquisition of Monsanto by Bayer and of Syngenta by
well as measures for designing the future of research and devel- ChemChina; their potential impact on BASF’s business and
opment. The Supervisory Board discussed in detail the reports strategic development possibilities, especially in the Agricultural
from the Board of Executive Directors, and also deliberated on Solutions segment; and current and future courses of action.
BASF Report 2016 Corporate Governance 147
Report of the Supervisory Board
With respect to regional opportunities and risks, the Supervisory on May 12, 2017. At the same Supervisory Board meeting,
Board was often occupied with political and economic develop- Saori Dubourg and Dr. Markus Kamieth were a ppointed to the
ments in northern Africa and the Middle East as well as the Board of Executive Directors, effective at the end of the 2017
development of local markets there. Possibilities for tapping Annual Shareholders’ Meeting, each with a first-time term to the
these markets were discussed. end of the 2020 Annual Shareholders’ Meeting.
At its meeting on February 24, 2016, the Supervisory Board Furthermore, the Supervisory Board agreed at its
reviewed and approved the Consolidated Financial Statements, December 15, 2016, meeting on the performance evaluation of
Management’s Report and the proposal for the appropriation of the Board of Executive Directors for the 2016 business year as
profit for the 2015 business year as presented by the Board of well as – based on an appropriateness test conducted by the
Executive Directors. The meeting on April 29, 2016, served to Personnel Committee – an adjustment of the Board of Executive
prepare for the Annual Shareholders’ Meeting. Directors’ compensation including an increase in the fixed s alary
In addition to strategically significant individual measures, and a nnual variable target compensation, effective January 1,
the Supervisory Board also addressed BASF’s strategy and 2017.
long-term business prospects in individual business areas and At several meetings, the Supervisory Board discussed the
regions. This was the focus of its meeting on July 25/26, 2016, topic of the compensation of the Supervisory Board. The cur-
at which the Board of Executive Directors provided a status rent configuration of the Supervisory Board’s compensation,
update on the implementation of the “We create chemistry” with a fixed salary and a limited variable compensation compo-
strategy. Main consultation topics comprised possibilities and nent based on earnings per share, has existed largely unchanged
objectives for strategic portfolio development, innovation and since 2006. In normal business years, compensation in fact
technology, the development of the Oil & Gas and Agricultural purely comprises a fixed salary, as the maximum amount of the
Solutions segments, the automotive sector as a key customer variable compensation is for the most part reached by the high
industry (especially with regard to the development of electro- level of earnings per share. This was also the case for compen-
mobility), and opportunities and risks in the Asia Pacific region. sation for 2016. The Supervisory Board therefore decided to
In addition, the Supervisory Board addressed future pros- propose to the 2017 Annual Shareholders’ Meeting a formal
pects for the main site in Ludwigshafen and the further develop- restructuring of the BASF Supervisory Board’s compensation to
ment of the Engineering & Maintenance function at its meeting a purely fixed salary, combined with a long-term obligation for
on October 25, 2016. the Supervisory Board members to acquire and keep shares –
At its meeting on December 15, 2016, the Supervisory in line with the development of the compensation structures of
Board discussed and approved the Board of Executive Direc- the majority of large publicly traded companies in Germany.
tors’ operative and financial planning including the investment
budget for 2017, and as usual empowered the Board of Execu Committees
tive Directors to procure necessary financing in 2017.
The Supervisory Board of BASF SE has four committees: 1. the
Composition and compensation of the committee for personnel matters of the Board of Executive
Board of Executive Directors Directors and the granting of loans in accordance with Section
89(4) of the German Stock Corporation Act (Personnel Commit-
In several meetings in the 2016 business year, the Supervisory tee); 2. the Audit Committee; 3. the Nomination Committee; and
Board conferred on, and passed resolutions on, personnel 4. the Strategy Committee. Following each Committee meeting,
topics in the Board of Executive Directors as well as questions the chairpersons of the Committees reported in detail about the
concerning the compensation of the Board of Executive meetings and the activities of the Committees at the subse-
Directors. Based on preparation conducted by the Personnel quent meeting of the Supervisory Board.
Committee, it determined the targets for the Board of Executive For information on the composition of the committees and the tasks
assigned them by the Supervisory Board, see the Corporate Governance
Directors for the 2016 business year at its meeting on Feb Report on page 129
ruary 24, 2016.
At its meeting on December 15, 2016, the Supervisory The Personnel Committee met four times during the reporting
Board advised on long-term succession planning for the Board period. All committee members attended the meetings. At its
of Executive Directors and approved the early conclusion of the meeting on February 24, 2016, the Personnel Committee
term for Dr. Harald Schwager, member of the Board of Execu- advised on the targets for the Board of Executive Directors for
tive Directors for many years, in order to allow for structured the 2016 business year. The meetings on July 25, 2016, and
succession. Dr. Harald Schwager agreed on early discontinu- October 25, 2016, focused on development of leadership at
ance of his contract without severance pay by the company and the top levels of management below the Board of Executive
will receive the contractually agreed upon interim and pension Directors and succession planning for that Board.
benefits in accordance with proper expiration of a term on the Further consultation topics comprised a review of the
Board of Executive Directors. Dr. Harald Schwager will therefore appropriateness of the compensation of the Board of Executive
depart the Board of Executive Directors together with Margret Directors, both in terms of amount and configuration of the
Suckale at the conclusion of the Annual Shareholders’ Meeting
148 Corporate Governance BASF Report 2016
Report of the Supervisory Board
compensation system, as well as the structure of the compen- for the composition of the Supervisory Board adopted by the
sation of the Supervisory Board. The basis for this was devel- Supervisory Board. The Nomination Committee met once in
oped and intensively discussed with an independent compen- 2016. All committee members attended the meeting. Its focus
sation consultant. The focus of the December 15, 2016, was the discussion of suitable candidates for the case of the
meeting was the discussion of and resolution on the Super early departure from the Supervisory Board of one of the mem-
visory Board’s proposal for new appointments to the Board of bers elected by the Annual Shareholder’s Meeting.
Executive Directors, the adjustment of that Board’s compensa- The Strategy Committee, formed to consult on strategic
tion, and a redesign of the Supervisory Board’s compensation. options for the further development of the BASF Group, did not
In addition, the Personnel Committee advised on the perfor- meet in 2016.
mance evaluation of the Board of Executive Directors as well as
the target figures for the proportion of women in that Board. Corporate Governance and Declaration of
The Audit Committee is responsible for all the tasks listed Conformity
in Section 107(3)(2) of the German Stock Corporation Act and
in Subsection 5.3.2 of the German Corporate Governance The Supervisory Board places great value on ensuring good
Code in its version of May 5, 2015. The Audit Committee met corporate governance: In 2016, it was therefore once again
five times during the reporting period. All committee members intensely occupied with the corporate governance standards
attended all meetings. Its core duties were to review BASF SE’s practiced in the company and the implementation of the Ger-
Financial Statements and Consolidated Financial Statements, man Corporate Governance Code’s recommendations and
as well as to discuss the quarterly and first-half financial reports suggestions. A further topic was the implementation of legal
with the Board of Executive Directors prior to their publication. stipulations in BASF SE. This included the E.U.’s regulation on
At the meeting on February 21, 2017, the auditor reported market abuse with the first-time introduction of legal “closed
in detail on its audits of BASF SE’s separate and consolidated periods” in which share transactions are not permissible, as
financial statements for the 2016 business year and discussed well as the Law on Equal Participation of Women and Men in
the results of its audit with the Audit Committee. Leadership Positions in the Private and Public Sector. The
At the meeting on July 25, 2016, KPMG AG Wirtschafts- Corporate Governance Report of the BASF Group provides
prüfungsgesellschaft – the auditor elected at the Annual Share- extensive information on BASF’s corporate governance. It also
holders’ Meeting – was charged with the audit for the 2016 includes the Compensation Report, containing full details on
reporting year and auditing fees were agreed upon. The focus the compensation for the Board of Executive Directors and the
areas for the annual audit were discussed and defined together Supervisory Board.
with the auditor. The Audit Committee categorically excluded At the meeting of December 15, 2016, current recommen-
any service relationships between auditor and BASF Group dations and proposals made for the German Corporate Gover-
companies outside of the audit of the annual financial state- nance Code and their implementation at BASF were discussed,
ments, including beyond prevailing legal limitations. These along with the joint Declaration of Conformity by the Super
services may only be performed upon approval by the Audit visory Board and Board of Executive Directors in accordance
Committee. For certain nonaudit services beyond the scope of with Section 161 of the Stock Corporation Act. BASF complies
the audit of the financial reports, the Audit Committee either with the recommendations of the German Corporate Gover-
granted approval for individual cases or authorized the Board nance Code in its version of May 5, 2015, without exception.
of Executive Directors to engage KPMG AG Wirtschafts The full Declaration of Conformity is rendered on page 150
and is available to shareholders on the company website at:
prüfungsgesellschaft for such services. The authorization of basf.com/en/governance
each service applies for one reporting year and is limited in
amount. Independence and efficiency review
Other important activities included advising the Board of
Executive Directors on accounting issues and the internal con- An important aspect of good corporate governance is the
trol system. The internal auditing system and compliance in the independence of Supervisory Board members and their
BASF Group were each a focus at one meeting of the Audit freedom from conflicts of interest. According to assessments of
Committee. In these meetings, the head of the Corporate Audit the Supervisory Board, all of its members can be considered
department and the Chief Compliance Officer reported to the independent as defined by the German Corporate Governance
Audit Committee and answered its questions. In all meetings, Code. The criteria used for this evaluation can be found in the
the Audit Committee also received information on the develop- Corporate Governance Report on page 130. In cases where
ment of risks from litigation. Supervisory Board members hold supervisory or management
The Nomination Committee is responsible for preparing positions at companies with which BASF has business relations,
candidate proposals for the election of those Supervisory we see no impairment of their independence. The scope of
Board members who are elected by the Annual Shareholders’ these businesses is relatively marginal and furthermore takes
Meeting. The Nomination Committee is guided by the o bjectives place under conditions similar to those of a third party.
BASF Report 2016 Corporate Governance 149
Report of the Supervisory Board
The Supervisory Board reviews the efficiency of its activities the proposal by the Board of Executive Directors for the appro-
every year in the form of a self-assessment. This took place in priation of profit as well as the Consolidated Financial State-
2016 as well, as the Chairman of the Supervisory Board con- ments and Management’s Report for the BASF Group for 2016.
ducted individual dialogs with each Supervisory Board member The Supervisory Board has reviewed, acknowledged and
using a structured questionnaire. Topics especially centered on approved the auditor’s reports. The results of the preliminary
Supervisory Board meeting agendas; cooperation with the review by the Audit Committee and the results of the Super
Board of Executive Directors; information supply of the Super visory Board’s examination fully concur with those of the audit.
visory Board; the Committees’ duties, composition and work; The Supervisory Board sees no grounds for objection to the
and cooperation with shareholder and employee representa- management and submitted reports.
tives. The results of these individual meetings were presented At the Supervisory Board’s accounts meeting on
and thoroughly discussed at the Supervisory Board meeting on February 22, 2017, it approved the Financial Statements of
December 15, 2016. Overall, its members rated the Supervisory BASF SE and the Consolidated Financial Statements of the
Board’s activity as efficient. BASF Group prepared by the Board of Executive Directors,
The Audit Committee once again conducted a self-assess- making the 2016 Financial Statements of BASF SE final. The
ment of its activities in 2016, apart from the efficiency review. Supervisory Board concurs with the proposal of the Board of
Material topic areas were the organization and content of the Executive Directors regarding the appropriation of profit and the
meetings and the supply of information as the basis of the Com- payment of a dividend of €3.00 per share.
mittees’ work. No notable need for action was identified.
Composition of the Supervisory Board
Separate and consolidated financial statements
Employee representative Wolfgang Daniel left the Supervisory
KPMG AG Wirtschaftsprüfungsgesellschaft, the auditor elected Board at the conclusion of the Annual Shareholders’ Meeting
by the Annual Shareholders’ Meeting for the 2016 reporting on April 29, 2016. He was succeeded by Waldemar Helber,
year, has audited the Financial Statements of BASF SE and who joined the Supervisory Board as the successor appointed
the BASF Group Consolidated Financial Statements, including by the BASF Works Council Europe on December 4, 2013,
the Management’s Report and the accounting records from in accordance with the Employee Participation Agreement of
which they were prepared, and have approved them free of November 15, 2007. The Supervisory Board thanks Wolfgang
qualification. Furthermore, the auditor certified that the Board of Daniel, who had been a member of the Supervisory Board since
Executive Directors had taken the measures incumbent on it 1996, for his many years of service.
under Section 91(2) of the German Stock Corporation Act in an For more information on changes within the Supervisory Board,
see the Corporate Governance Report on page 130
appropriate manner. In particular, it had instituted an appropriate
information and monitoring system that fulfilled the requirements
of the company and is applicable for the early identification of Thanks
developments that could pose a risk to the continued existence
of the BASF Group. The Supervisory Board thanks all employees of the BASF
The documents to be examined and the auditor’s reports Group worldwide and the management for their personal
were sent in a timely manner to every member of the Supervisory contribution in the 2016 business year.
Board. The auditor attended the accounts review meeting of the
Audit Committee on February 21, 2017, as well as the accounts Ludwigshafen, February 22, 2017
meeting of the Supervisory Board on February 22, 2017, and
reported on the main findings of the audit. The auditor also The Supervisory Board
provided detailed explanations of the reports on the day before
the accounts meeting of the Supervisory Board.
The Audit Committee reviewed the Financial Statements
and Management’s Report at its meeting on February 21, 2017,
and discussed them in detail with the auditor. The Chairwoman
of the Audit Committee gave a detailed account of the prelimi- Jürgen Hambrecht
nary review at the Supervisory Board meeting on February 22, Chairman of the Supervisory Board
2017. On the basis of this preliminary review by the Audit Com-
mittee, the Supervisory Board has examined the Financial
Statements and Management’s Report of BASF SE for 2016,
150 Corporate Governance BASF Report 2016
Declaration of Conformity pursuant to Section 161 of the German Stock Corporation Act (AktG) / Declaration of Corporate Governance
Declaration of Conformity pursuant to Section 161
of the German Stock Corporation Act (AktG)
Declaration of Conformity 2016 of the Board of
Executive Directors and the Supervisory Board
of BASF SE
The Board of Executive Directors and the Supervisory
Board of BASF SE hereby declare pursuant to Section
161 AktG (Stock Corporation Act)
The recommendations of the Government Commission on the
German Corporate Governance Code as amended on May 5,
2015, published by the Federal Ministry of Justice on June 12,
2015, in the official section of the electronic Federal Gazette,
have been complied with since the submission of the last
Declaration of Conformity in December 2015.
Ludwigshafen, December 2016
The Supervisory Board The Board of Executive Directors
of BASF SE of BASF SE
Declaration of Corporate Governance
Declaration of Corporate Governance as per
Section 315(5) of the German Commercial Code
(HGB) in connection with Section 289(a) HGB
The Declaration of Corporate Governance, pursuant to Sec-
tion 315(5) HGB in connection with Section 289(a) HGB,
comprises the subchapters Corporate Governance Report
(except for the disclosures persuant to Section 315(4) HGB),
Compliance and Declaration of Conformity as per Section 161
of the German Stock Corporation Act (AktG) in the Corporate
Governance chapter. It is a component of the Management’s
Report.
4
To Our Shareholders 5
Management’s Report 17
Corporate Governance 125
Consolidated Financial
Statements
Supplementary Information on the Oil & Gas Segment 221
Overviews 231
Notes
Statement by the Board of Executive Directors 153 Policies and scope of consolidation
1 Summary of accounting policies 160
Auditor’s report 154 2 Scope of consolidation 172
3 BASF Group List of Shares Held in
Statement of income 155 accordance with Section 313(2) of the G
erman
Commercial Code 178
Statement of income and expense recognized 4 Reporting by segment and region 178
in equity 156 Notes on statement of income
5 Earnings per share 181
Balance sheet 157 6 Functional costs 182
7 Other operating income 182
Statement of cash flows 158 8 Other operating expenses 183
9 Income from companies accounted for using
Statement of equity 159 the equity method 184
10 Financial result 185
11 Income taxes 185
12 Minority interests 188
13 Personnel expenses and employees 188
Notes on balance sheet
14 Intangible assets 189
15 Property, plant and equipment 192
tatements
16 Investments accounted for using the equity
method and other financial assets 194
17 Inventories 194
Consolidated Financial S
18 Receivables and miscellaneous assets 195
19 Capital, reserves and retained earnings 196
20 Other comprehensive income 197
21 Minority interests 197
22 Provisions for pensions and similar
obligations 198
23 Other provisions 203
24 Liabilities 204
25 Other financial obligations 206
26 Risks from litigation and claims 207
27 Supplementary information on financial
instruments 208
28 Leases 214
Other explanatory notes
29 Statement of cash flows and capital structure
management 215
30 Share-price-based compensation program
and BASF incentive share program 216
31 Compensation for the Board of Executive
Directors and Supervisory Board 218
32 Related-party transactions 218
33 Services provided by the external auditor 219
34 Declaration of Conformity with the German
Corporate Governance Code 220
35 Nonadjusting events after the reporting
period 220
BASF Report 2016 Consolidated Financial S tatements 153
Statement by the Board of Executive Directors
Statement by the Board of Executive Directors
and assurance pursuant to Sections 297(2) and 315(1)
of the German Commercial Code (HGB)
The Board of Executive Directors of BASF SE is responsible To the best of our knowledge, and in accordance with the
for preparing the Consolidated Financial Statements and applicable reporting principles, the Consolidated Financial
Management’s Report of the BASF Group. Statements of the BASF Group give a true and fair view of the
The BASF Group Consolidated Financial Statements for net assets, financial position and results of operations of the
2016 were prepared according to the International Financial Group, and the Management’s Report of the BASF Group
Reporting Standards (IFRS), which are published by the Inter- includes a fair review of the development and performance
national Accounting Standards Board (IASB), London, and of the business as well as position of the BASF Group,
have been endorsed by the European Union. together with a description of the principal opportunities
We have established effective internal control and steering and risks a
ssociated with the expected development of the
systems in order to ensure that the BASF Group’s Consoli BASF Group.
dated Financial Statements and Management’s Report comply
with applicable accounting rules and to ensure proper
corporate reporting.
The risk management system we have set up is designed
such that the Board of Executive Directors can identify material
risks early on and take appropriate defensive measures as
necessary. The reliability and effectiveness of the internal con-
trol and risk management system are continually audited
throughout the Group by our internal audit department.
Ludwigshafen am Rhein, February 21, 2017
Dr. Kurt Bock Dr. Martin Brudermüller
Chairman Vice Chairman
Dr. Hans-Ulrich Engel Sanjeev Gandhi
Chief Financial Officer
Michael Heinz Dr. Harald Schwager
Wayne T. Smith Margret Suckale
154 Consolidated Financial Statements BASF Report 2016
Auditor’s report
Auditor’s report
We have audited the consolidated financial statements assurance. Knowledge of the business activities and the
prepared by BASF SE, Ludwigshafen am Rhein, Germany, economic and legal environment of the Group and expecta-
comprising the statement of income, statement of income and tions as to possible misstatements are taken into account in
expense recognized in equity, balance sheet, statement of the determination of audit procedures. The effectiveness
cash flows, statement of equity and the Notes to the of the accounting-related internal control system and the
Consolidated Financial Statements together with the Group evidence supporting the disclosures in the Consolidated
Management’s Report for the business year from January 1 to Financial Statements and the Group Management’s Report
December 31, 2016. The preparation of the Consolidated are examined primarily on a test basis within the framework of
Financial Statements and the Group Management’s Report in the audit. The audit includes assessing the annual financial
accordance with IFRSs as adopted by the European Union, statements of those entities included in consolidation, the
and the additional requirements of German commercial law determination of entities to be included in consolidation, the
pursuant to Section 315a(1) of the German Commercial Code accounting and consolidation principles used and significant
(HGB) are the responsibility of the parent company’s manage- estimates made by the Board of Executive Directors, as well
ment. Our responsibility is to express an opinion on the as evaluating the overall presentation of the consolidated
Consolidated Financial Statements and on the Group
financial statements and the group management report. We
Management’s Report based on our audit. In addition, we believe that our audit provides a reasonable basis for our
have been instructed to express an opinion as to whether the opinion.
consolidated financial statements comply with full IFRS. Our audit has not led to any reservations.
We conducted our audit of the Consolidated Financial In our opinion, based on the findings of our audit, the
Statements in accordance with Section 317 HGB and German consolidated financial statements comply with IFRSs as
generally accepted standards for the audit of financial adopted by the E.U., the additional requirements of German
statements promulgated by the Institute of Public Auditors commercial law pursuant to Section 315a(1) HGB and full
in
Germany (Institut der Wirtschaftsprüfer, IDW). Those IFRS and give a true and fair view of the net assets, financial
standards require that we plan and perform the audit such that position and results of operations of the Group in accordance
misstatements materially affecting the presentation of the net with these requirements. The Group Management’s Report
assets, financial position and results of operations in is consistent with the Consolidated Financial Statements,
the Consolidated Financial Statements in accordance with the conforms to legal requirements, and as a whole provides a
applicable financial reporting framework and in the Group suitable view of the Group’s position and suitably presents the
Management’s Report are detected with reasonable opportunities and risks of future development.
Frankfurt am Main, February 21, 2017
KPMG AG
Wirtschaftsprüfungsgesellschaft
Rega Krauß
Wirtschaftsprüfer Wirtschaftsprüfer
BASF Report 2016 Consolidated Financial S
tatements 155
Statement of income
Statement of income
BASF Group
Statement of income (million €)
Explanations in Note 2016 2015
Sales revenue [4] 57,550 70,449
Cost of sales [6] (39,265) (51,372)
Gross profit on sales 18,285 19,077
Selling expenses [6] (7,764) (8,062)
General administrative expenses [6] (1,337) (1,429)
Research and development expenses [6] (1,863) (1,953)
Other operating income [7] 1,780 2,004
Other operating expenses [8] (3,133) (3,640)
Income from companies accounted for using the equity method [9] 307 251
Income from operations [4] 6,275 6,248
Income from other shareholdings 54 80
Expenses from other shareholdings (71) (71)
Net income from shareholdings (17) 9
Interest income 179 213
Interest expenses (661) (638)
Interest result (482) (425)
Other financial income 97 152
Other financial expenses (478) (436)
Other financial result (381) (284)
Financial result [10] (880) (700)
Income before taxes and minority interests 5,395 5,548
Income taxes [11] (1,140) (1,247)
Income before minority interests 4,255 4,301
Minority interests [12] (199) (314)
Net income 4,056 3,987
Earnings per share (€) [5] 4.42 4.34
Dilution effect (€) [5] (0.01) (0.01)
Diluted earnings per share (€) [5] 4.41 4.33
156 Consolidated Financial Statements BASF Report 2016
Statement of income and expense recognized in equity
Statement of income and expense recognized in equity
BASF Group
Statement of comprehensive income1 (million €)
2016 2015
Shareholders Minority Shareholders Minority
BASF Group of BASF SE interests BASF Group of BASF SE interests
Income before minority interests 4,255 4,056 199 4,301 3,987 314
Remeasurement of defined benefit plans2 (1,839) (1,839) – 973 973 –
Deferred taxes for gains/losses that cannot be
reclassified 553 553 – (273) (273) –
Gains/losses that cannot be reclassified
after taxes from equity-accounted shareholdings (3) (3) – (12) (12) –
Gains/losses that cannot be reclassified (1,289) (1,289) − 688 688 −
Unrealized gains/losses from fair value changes in
available-for-sale securities 9 9 – – – –
Reclassifications of realized gains/losses recognized
in the income statement 0 0 – 0 0 –
Fair value changes in available-for-sale
securities, net3 9 9 − – – –
Unrealized gains/losses from cash flow hedges (17) (17) – (94) 22 (116)
Reclassifications of realized gains/losses recognized
in the income statement (51) (51) – 676 347 329
Cash flow hedges, net3 (68) (68) − 582 369 213
Unrealized gains/losses from currency translation 758 747 11 922 858 64
Deferred taxes for gains/losses that can be
reclassified 8 8 – (179) (104) (75)
Gains/losses that can be reclassified
after taxes from equity-accounted shareholdings 100 100 – 82 82 –
Gains/losses that can be reclassified 807 796 11 1,407 1,205 202
Other comprehensive income after taxes (482) (493) 11 2,095 1,893 202
Comprehensive income 3,773 3,563 210 6,396 5,880 516
1
For more information on other comprehensive income, see Note 20 on page 197.
2
For more information, see Note 22, “Provisions for pensions and similar obligations,” from page 198 onward.
3
For more information, see Note 27, “Supplementary information on financial instruments,” from page 208 onward.
Development of income and expense recognized in equity of shareholders of BASF SE (million €)
Other comprehensive income
Foreign Total income
Remeasure- currency Measurement and expense
ment of defined translation of securities Cash flow recognized
benefit plans adjustment at fair value hedges in equity
As of January 1, 2016 (4,084) 652 20 (109) (3,521)
Additions (1,842) 835 14 (61) (1,054)
Releases – – – – −
Deferred taxes 553 (11) (2) 21 561
As of December 31, 2016 (5,373) 1,476 32 (149) (4,014)
As of January 1, 2015 (4,840) (259) 20 (403) (5,482)
Additions 961 924 0 385 2,270
Releases 68 1 – – – 68
Deferred taxes (273) (13) 0 (91) (377)
As of December 31, 2015 (4,084) 652 20 (109) (3,521)
1
Reclassification to retained earnings in accordance with IAS 19.122; for more information, see Note 20 on page 197
BASF Report 2016 Consolidated Financial S
tatements 157
Balance sheet
Balance sheet
BASF Group
Assets (million €)
Explanations in Note Dec. 31, 2016 Dec. 31, 2015
Intangible assets [14] 15,162 12,537
Property, plant and equipment [15] 26,413 25,260
Investments accounted for using the equity method [16] 4,647 4,436
Other financial assets [16] 605 526
Deferred tax assets [11] 2,513 1,791
Other receivables and miscellaneous assets [18] 1,210 1,720
Noncurrent assets 50,550 46,270
Inventories [17] 10,005 9,693
Accounts receivable, trade [18] 10,952 9,516
Other receivables and miscellaneous assets [18] 3,078 3,095
Marketable securities 536 21
Cash and cash equivalents1 [1] 1,375 2,241
Current assets 25,946 24,566
Total assets 76,496 70,836
Equity and liabilities (million €)
Explanations in Note Dec. 31, 2016 Dec. 31, 2015
Subscribed capital [19] 1,176 1,176
Capital surplus [19] 3,130 3,141
Retained earnings [19] 31,515 30,120
Other comprehensive income [20] (4,014) (3,521)
Equity of shareholders of BASF SE 31,807 30,916
Minority interests [21] 761 629
Equity 32,568 31,545
Provisions for pensions and similar obligations [22] 8,209 6,313
Other provisions [23] 3,667 3,369
Deferred tax liabilities [11] 3,317 3,381
Financial indebtedness [24] 12,545 11,123
Other liabilities [24] 873 869
Noncurrent liabilities 28,611 25,055
Accounts payable, trade 4,610 4,020
Provisions [23] 2,802 2,540
Tax liabilities [11] 1,288 1,082
Financial indebtedness [24] 3,767 4,074
Other liabilities [24] 2,850 2,520
Current liabilities 15,317 14,236
Total equity and liabilities 76,496 70,836
1
For a reconciliation of the amounts in the statement of cash flows with the balance sheet item “cash and cash equivalents,” see page 158.
158 Consolidated Financial Statements BASF Report 2016
Statement of cash flows
Statement of cash flows
BASF Group
Statement of cash flows1 (million €)
2016 2015
Net income 4,056 3,987
Depreciation and amortization of intangible assets, property, plant and equipment and financial assets 4,291 4,448
Changes in inventories (182) 1,094
Changes in receivables (640) 1,463
Changes in operating liabilities and other provisions 926 (1,210)
Changes in pension provisions, defined benefit assets and other items (547) (317)
Gains (–) / losses (+) from disposal of noncurrent assets and securities (187) (19)
Cash provided by operating activities 7,717 9,446
Payments made for property, plant and equipment and intangible assets (4,145) (5,812)
Payments made for financial assets and securities (1,389) (920)
Payments made for acquisitions (2,828) (215)
Payments received for divestitures 664 651
Payments received from the disposal of noncurrent assets and securities 1,208 1,061
Cash used in investing activities (6,490) (5,235)
Capital increases/repayments and other equity transactions 28 66
Additions to financial and similar liabilities 7,533 6,937
Repayment of financial and similar liabilities (6,954) (7,870)
Dividends paid
To shareholders of BASF SE (2,664) (2,572)
minority shareholders (103) (234)
Cash used in financing activities (2,160) (3,673)
Net changes in cash and cash equivalents (933) 538
Change in cash and cash equivalents
From foreign exchange rates 66 (19)
changes in scope of consolidation 1 4
Cash and cash equivalents at the beginning of the year 2,241 1,718
Cash and cash equivalents at the end of the year 1,375 2,241
1
More information on the statement of cash flows can be found in the Management’s Report (Financial Position) on page 58.
Other information on cash flows can be found in Note 29 on page 215.
BASF Report 2016 Consolidated Financial S
tatements 159
Statement of equity
Statement of equity
BASF Group
Statement of equity1 (million €)
Equity of
Number of Other com- share
shares Subscribed Capital Retained prehensive holders of Minority
outstanding capital surplus earnings income 2 BASF SE interests Equity
As of January 1, 2016 918,478,694 1,176 3,141 30,120 (3,521) 30,916 629 31,545
Effects of acquisitions
achieved in stages − − − − − − − −
Dividend paid − − − (2,664) − (2,664) (103)3 (2,767)
Net income − − − 4,056 − 4,056 199 4,255
Changes to income and expense
recognized directly in equity − − − − (493) (493) 11 (482)
Changes in scope of
consolidation and other changes − − (11)4 3 − (8) 25 17
As of December 31, 2016 918,478,694 1,176 3,130 31,515 (4,014) 31,807 761 32,568
As of January 1, 2015 918,478,694 1,176 3,143 28,777 (5,482) 27,614 581 28,195
Effects of acquisitions
achieved in stages − − − − − − − −
Dividend paid − − − (2,572) − (2,572) (234)3 (2,806)
Net income − − − 3,987 − 3,987 314 4,301
Changes to income and expense
recognized directly in equity − − − − 1,893 1,893 202 2,095
Changes in scope of
consolidation and other changes − − (2)4 (72)5 686 (6) (234) (240)
As of December 31, 2015 918,478,694 1,176 3,141 30,120 (3,521) 30,916 629 31,545
1
For more information on the items relating to equity, see Notes 19 und 20 from page 196 onward.
2
Details are provided in the table “Income and expense recognized in equity” on page 156.
3
Including profit and loss transfers
4
Granting of BASF shares under the BASF share program “plus”
5
Including reclassification to retained earnings in accordance with IAS 19.122; for more information, see Note 19 on page 196
6
Reclassification to retained earnings in accordance with IAS 19.122; for more information, see Note 20 on page 197
160 Consolidated Financial Statements BASF Report 2016
Notes — Policies and scope of consolidation
Policies and scope of consolidation
1 Summary of accounting policies
1.1 General information Amendments to IAS 16 and IAS 38 – Clarification of
BASF SE (registered at the district trade register, or Amts- Acceptable Methods of Depreciation and Amortization
gericht, for Ludwigshafen am Rhein, number HRB 6000 ) is a The IASB issued amendments to IAS 16 and IAS 38 on
publicly listed corporation headquartered in Ludwigshafen am May 12, 2014. These revisions provide further guidance on
Rhein, Germany. Its official address is C arl-Bosch-Str. 38, determining an acceptable method of depreciation and
67056 Ludwigshafen am Rhein, Germany. amortization. Revenue-based methods are not permissible for
The Consolidated Financial Statements of BASF SE as of property, plant and equipment and are only permissible for
December 31, 2016, have been prepared in accordance with intangible assets in specific exceptional cases (rebuttable
the International Financial Reporting Standards (IFRS) of the presumption of inappropriateness). The changes are effective
International Accounting Standards Board (IASB) and for reporting periods beginning on or after January 1, 2016.
Section 315a (1) of the German Commercial Code (HGB). The European Union’s endorsement was issued on Decem-
IFRSs are generally only applied after they have been
ber 3, 2015. The amendments did not have a material effect
endorsed by the European Union. For the 2016 fiscal year, on BASF.
all of the binding IFRSs and pronouncements of the Inter
national Financial Reporting Interpretations Committee (IFRIC) Amendments to IAS 19 – Employee Contributions to
were applied. Defined Benefit Plans
The Consolidated Financial Statements are presented in The IASB issued amendments to IAS 19 on Novem-
euros. All amounts, including the figures for previous years, are ber 21, 2013. The amendments clarify requirements dealing
given in million euros unless otherwise indicated. with the allocation to service periods of employee or third-
The individual financial statements of the consolidated party contributions in cases where these are linked to the
companies are prepared as of the balance sheet date of the service period. Furthermore, practical expedients were made
Consolidated Financial Statements. The accounting policies for cases where contributions are independent from the
applied are largely the same as those used in 2015, with the number of service years. The European Union endorsed the
exception of any changes arising from the application of new changes on January 9, 2015. In a deviation from the IASB’s
or revised standards. effective date (reporting periods beginning on or after
In its meeting on February 20, 2017, the Board of July 1, 2014), IFRS-based financial statements in the
Executive Directors prepared the Consolidated Financial
European Union must apply the amendments for reporting
Statements, submitted them to the Supervisory Board for periods beginning on or after February 1, 2015. The applica-
review and approval, and released them for publication. tion of the amendments did not materially affect BASF.
1.2 Changes in accounting principles Amendments to IFRS 11 – Accounting for Acquisitions of
Interests in Joint Operations
Accounting policies applied for the first time in 2016 The IASB issued amendments to IFRS 11 on May 6, 2014.
IFRS 11 includes regulations on the recognition of assets and
Amendments to IAS 1 – Disclosure Initiative liabilities and gains or losses of joint ventures and joint
On December 18, 2014, the IASB issued amendments made operations. Whereas joint ventures are accounted for using
to IAS 1. The amendments pertain to various disclosure the equity method, joint operations, according to IFRS 11, are
requirements. It is made clear that information needs to be recognized in a similar fashion to proportional consolidation.
disclosed in the notes only if this is material for the company. With the amendment to IFRS 11, IASB regulates the
This explicitly applies if a standard calls for a list of minimum accounting for the acquisition of shares in a joint operation,
disclosures. Explanations are moreover provided on the which constitutes a business according to IFRS 3 – Business
aggregation and disaggregation of line items in the balance Combinations. In such cases, the acquirer shall apply the
sheet and statement of comprehensive income. Furthermore, principles of accounting for business combinations according
the revised standard clarifies how an entity’s share of the other to IFRS 3. Furthermore, the disclosure requirements in IFRS 3
comprehensive income of equity-accounted companies is to also apply in such cases. The amendments are effective for
be presented in the statement of comprehensive income. The reporting periods beginning on or after January 1, 2016. An
changes are effective for reporting periods beginning on or endorsement by the European Union was issued on
after January 1, 2016. An endorsement by the European November 25, 2015. BASF did not acquire shares in a joint
Union was issued on December 19, 2015. Due to the recent operation in 2016.
revision of IAS 1, the contributions of companies accounted
for using the equity method are now shown separately in the
Statement of Comprehensive Income. In addition, noncon-
trolling interests have been distributed among the subitems
under the separate “minority interests” column.
BASF Report 2016 Consolidated Financial S tatements 161
Notes — Policies and scope of consolidation
IFRS Annual Improvements Cycle 2010–2012 The IFRS 9 regulations on hedge accounting aim for a closer
Under its Annual Improvement Project, the IASB issued alignment of hedge accounting with the entity’s risk manage-
amendments to several standards on December 12, 2013. ment strategy.
The affected standards are IFRS 2, IFRS 3, IFRS 8, IFRS 13, The new requirements for classification and measurement
IAS 16, IAS 24 and IAS 38. The amendments address details could have an impact on the accounting treatment of other
of the recognition, measurement and disclosure of business shareholdings. BASF currently measures almost all of these
transactions or serve to standardize terminology. The shareholdings at amortized cost, in line with IAS 39.46c.
European Union endorsed the changes on January 9, 2015. Because IFRS 9 does not contain any comparable regulations,
In a deviation from the IASB’s effective date (reporting BASF is currently reviewing what represents the best metric
periods beginning on or after July 1, 2014), IFRS-based
for estimating fair value on a case-by-case basis. BASF will
financial statements in the European Union must apply the determine on an instrument-by-instrument basis whether
amendments for reporting periods beginning on or after Feb- measurement will take place at fair value through other
ruary 1, 2015. The application of the amendments did not comprehensive income or at fair value through profit or loss.
materially affect BASF. As IFRS 9 introduces a cash flow condition that needs to
be considered in classifying financial assets, it is possible that
IFRS Annual Improvements Cycle 2012–2014 financial assets measured at amortized cost or at fair value
Under its Annual Improvement Project, the IASB issued through other comprehensive income as per IAS 39 may, in
amendments to several standards on September 25, 2014. the future, need to be measured at fair value through profit or
The affected standards are IAS 19, IAS 34, IFRS 5 and IFRS 7. loss. BASF will conduct this analysis in 2017. Impacts may
The amendments address details of the recognition, measure- especially be observed for securities that are currently
ment and disclosure of business transactions or serve to classified as available-for-sale financial assets and thus
standardize terminology. The changes are effective for report- measured at fair value through other comprehensive income.
ing periods beginning on or after January 1, 2016. An Depending on the cash flow characteristics of these financial
endorsement by the European Union was issued on Decem- instruments, measurement at fair value through profit or loss
ber 16, 2015. The application of the amendments did not may be required in the future.
materially affect BASF. Recognition of expected losses for trade accounts receiv-
able will largely take place on the basis of internal and external
IFRSs and IFRICs not yet to be considered customer ratings and the associated probability of default.
Furthermore, the new impairment model is also to be used
The effects on the BASF Group financial statements of the for other financial instruments measured at amortized cost,
IFRSs and IFRICs not yet in force or not yet endorsed by the such as bank balances, loan receivables and miscellaneous
European Union in 2016 were reviewed and are explained receivables to the extent that they represent financial instru-
below. ments. As no group-wise individual valuation allowances are
currently calculated for such financial assets, the introduction
IFRS 9 – Financial Instruments of IFRS 9 will probably mean an increase in the risk provision.
On July 24, 2014, the IASB issued the final version of IFRS 9, This effect cannot yet be reliably quantified.
concluding the multiyear project to replace IAS 39 – Financial With regard to new hedge accounting regulations, BASF
Instruments: Recognition and Measurement. IFRS 9 contains assumes that, in principle, all existing hedge accounting
new requirements for the classification and measurement of relationships may be continued under IFRS 9. It has not yet
financial instruments, fundamental changes regarding the been fully determined how the accounting choices concerning
accounting treatment of financial asset impairments, and a the designation of derivatives, as introduced by IFRS 9, will be
reformed approach to hedge accounting. The new standard exercised.
will be effective for reporting periods beginning on or after BASF has not opted for early application of the new
January 1, 2018. The European Union endorsed the standard standard. At the moment, BASF assumes that the new
in the fourth quarter of 2016. regulations can be applied prospectively to a large extent. The
IFRS 9 retains “amortized cost” and “fair value” as the difference in the impairment amount that will arise upon
criteria for measuring financial instruments. Whether financial transition to IFRS 9 will be recognized in equity at the
assets are measured at amortized cost or fair value will beginning of the business year of the first-time adoption of the
depend on two factors: the entity’s business model for man- standard. Exceptions to the prospective application are the
aging the portfolio to which the financial asset belongs and the regulations on accounting for the time value of options if only
contractual cash flow characteristics of the financial asset. the intrinsic value is designated, and the analysis of the cash
In the future, the recognition of financial asset impairments flow condition that generally pertains to the point in time of the
is based on expected losses according to IFRS 9. The general first recognition of each financial instrument.
approach adopts a three-stage model to assess the provisions
for risks. The model requires different degrees of impairment
based on the credit default risk of the counterparties. For cer-
tain financial instruments, such as trade accounts receivable,
operational simplifications for recognizing impairment losses
apply.
162 Consolidated Financial Statements BASF Report 2016
Notes — Policies and scope of consolidation
IFRS 15 – Revenues from Contracts with Customers BASF is currently planning to apply IFRS 15 for the first time on
The IASB published the new standard on revenue recognition, January 1, 2018, by adjusting equity in the amount of the
IFRS 15, on May 28, 2014. The revised standard particularly cumulative effect (modified retroactive application).
aims to standardize existing regulations and thus improve
transparency and the comparability of financial information. IFRS 16 – Leases
The rules and definitions of IFRS 15 supersede the content of The IASB published the new standard on leasing, IFRS 16, on
IAS 11, IAS 18, IFRIC 13. The new standard will be effective for January 13, 2016. The rules and definitions of IFRS 16
reporting periods beginning on or after January 1, 2018. BASF supersede the content of IAS 17, IFRIC 4, SIC 15 and
does not plan to adopt the standard early. The E uropean SIC 27. The standard requires an accounting model for a
Union endorsed the standard in 2016. lessee that recognizes all assets and liabilities from leasing
The new standard does not differentiate between different agreements in the balance sheet, unless the term is twelve
types of contracts and services, but rather introduces uniform months or less or the underlying asset is of low value. As for
criteria for the timing of revenue recognition. According to the lessor, the new standard substantially carries forward the
IFRS 15, sales revenue is recognized when control of the lessor accounting requirements of IAS 17 – Leases. The new
agreed-upon goods or services and the benefits obtainable standard will be effective for reporting periods beginning on or
from them are transferred to the customer. Sales revenue is after
January 1, 2019. An endorsement by the European
measured as the amount the entity expects to receive in Union is still pending. BASF does not plan on early adoption
exchange for goods and services. and will likely recognize the cumulative adjustment effect in
The new model for the determination of revenue recog equity on J anuary 1, 2019.
nition is based on five steps:
––Step 1: Identify the contract(s) with a customer Amendments to IFRS 10 and IAS 28 – Sale or Contribution
––Step 2: Identify the performance obligations in the contract of Assets between an Investor and its Associate or Joint
––Step 3: Determine the transaction price Venture
––Step 4: Allocate the transaction price to the performance The IASB issued amendments to IFRS 10 and IAS 28 on
obligations in the contract September 11, 2014. The amendments address a known
––Step 5: Recognize revenue when (or as) the entity satisfies inconsistency between the requirements of IFRS 10 and
a performance obligation IAS 28 (2011) in the case of the sale of an asset to an
associated company or a joint venture or the contribution of an
The new standard’s potential impact on BASF’s net assets, asset to an associated company or a joint venture. According
financial position and results of operations is being assessed. to IFRS 10, if the disposal of a subsidiary by a parent company
A Group-wide analysis was conducted to investigate the results in a loss of control, it recognizes the gain or loss on the
extent to which BASF is affected by the new standard. sale of the subsidiary in the full amount in the income state-
First, the major types of contracts were identified at an ment. In contrast, the currently applicable IAS 28.28 requires
operating division level and analyzed with regard to the that a gain on sales transactions between an investor and an
changes in accounting under IFRS 15. Based on the results, investment accounted for using the equity method – whether
the need for adjustment is currently being assessed. it be an associated company or joint venture – is recognized
Analysis of the contracts showed that contracts with only to the extent of the investor’s interests in the associated
customers almost exclusively contain one service component company or joint venture. In the future, the entire gain or loss
or a number of similar service components and that these arising from a transaction shall only be recognized when the
must be fulfilled by a certain point in time. Furthermore, con- assets sold or contributed constitute a business combination
tracts with customers were identified that could lead, accord- according to IFRS 3. This applies regardless of whether the
ing to IFRS 15, to a shift in time of revenue recognition. These transaction is a share or asset deal. Only a pro rata recognition
are mainly contracts with several contractual obligations and of gain is permissible if the assets do not constitute a business
revenues from issuing licenses. In such cases, revenue
combination. IASB has postponed the effective date of the
recognition according to IFRS 15 will take place at both an changes indefinitely.
earlier and later point in time than it had been previously. BASF
assumes that fulfillment of the new standard’s requirements
will necessitate the introduction of the balance sheet items
“contractual asset” and “contractual liability” as well as more
comprehensive quantitative and qualitative disclosures in the
Notes to the Consolidated Financial Statements. The analyses
showed no grounds to expect material impact on BASF’s
results of operations or net assets.
BASF Report 2016 Consolidated Financial S tatements 163
Notes — Policies and scope of consolidation
IASB issued further amendments to standards and interpreta- onsideration is essential for determining the exchange rate
c
tions whose application is not yet mandatory and whose for the underlying asset, income or expense. The interpretation
application also requires the endorsement of E.U. law. These is – pending E.U. endorsement – to be applied for the first time
amendments are unlikely to have a material impact on the in the first reporting period of a business year beginning on or
reporting of BASF SE. after January 1, 2018. Early adoption is permissible.
Amendments to IAS 7 – Statement of Cash Flows: The Annual Improvements to IFRSs (2014–2016): Three
amendments pursue the objective that entities provide IFRSs were amended in the Annual Improvements to IFRSs
disclosures that enable users of financial statements to
(2014–2016). In IFRS 12, it was clarified that disclosures pur-
evaluate changes in liabilities arising from financing activities. suant to IFRS 12 generally also apply to an entity’s interests in
The amendments are – subject to E.U. endorsement – to be subsidiaries, joint ventures and associated companies that are
applied for the first time in the first reporting period of a classified as held for sale in accordance with IFRS 5, with the
business year beginning on or after January 1, 2017, although exception of the disclosures outlined in IFRS 12.B10–B16
early adoption is permissible. (Financial Information). In IAS 28, it was clarified that the
Amendments to IAS 12 – Income Taxes: The amend- election to measure an investment in an associated company
ments to IAS 12 particularly aim to clarify how to account for or a joint venture held by an entity that is a venture capital
deferred tax assets for unrealized losses related to assets organization or other qualifying entity, can be exercised on an
measured at fair value, which are currently handled variously in investment-by-investment basis. The short-term exemptions
practice. The amendments are – subject to E.U. endorse- in IFRS 1, Appendix E (IFRS 1.E3–E7) for first-time IFRS users
ment – to be applied for the first time in the first reporting were deleted. Pending E.U. endorsement, the amendments
period of a business year beginning on or after Janu-
to IFRS 12 are to be applied for the first time in the first
ary 1, 2017, although early adoption is permissible. reporting period of a business year beginning on or after
Amendments to IFRS 2 – Classification and Measure- January 1, 2017. Early adoption is permissible.
ment of Share-Based Payment Transactions: The amend-
ments involve a number of individual issues pertaining to the 1.3 Group accounting principles
accounting of cash-settled share-based payment transac- Scope of consolidation: The scope of consolidation is based
tions. IFRS 2 now contains requirements on determining the on the application of the standards IFRS 10 and 11.
fair value of obligations resulting from share-based payment According to IFRS 10, a group consists of a parent entity
transactions. The amendments are – pending E.U. endorse- and the subsidiaries controlled by the parent. “Control” of an
ment – to be applied to compensation granted or changed in investee assumes the simultaneous fulfillment of the following
business years beginning on or after January 1, 2018. Early three criteria:
adoption is permissible. ––The parent company holds decision-making power over the
Amendments to IFRS 4 – Insurance Contracts: The relevant activities of the investee
amendments aim to minimize the effects of various first-time ––The parent company has rights to variable returns from the
application dates of IFRS 9, especially for entities with investee
extensive insurance activities. The amendments are – pending ––The parent company can use its decision-making power to
E.U. endorsement – to be applied for the first time starting affect the variable returns
January 1, 2018.
Supplementary information on IFRS 15 – Revenues Based on corporate governance and potential supplementary
from Contracts with Customers: The amendments clarify agreements, companies are analyzed for their relevant
various regulations in IFRS 15 and provide transition relief for activities and variable returns, and the link between the v ariable
the new standard. Beyond clarification, the changed standard returns and the extent to which their relevant activities could
also contains two additional practical expedients for reducing be influenced.
complexity and cost in the transfer to the new standard. These According to IFRS 11, which regulates the accounting of
concern options for the presentation of contracts that are joint arrangements, a distinction must be made between joint
either concluded by the start of the earliest-presented period ventures and joint operations. In the case of a joint venture, the
or that have been changed before the start of the earliest- parties that have joint control of a legally independent c
ompany
presented period. The amendments are – pending E.U. have rights to the net assets of that arrangement. In joint
endorsement – to be applied for the first time starting
operations, the parties that have joint control have direct rights
January 1, 2018. to the assets and obligations for the liabilities relating to the
Supplementary information on IFRIC 22 – Foreign arrangement. This requirement is particularly fulfilled if the
Currency Transactions and Advance Consideration:
production output of the joint arrangement is almost entirely
IFRIC 22 addresses an application question for IAS 21 – The transferred to the partners, through which the partners
Effects of Changes in Foreign Exchange Rates. It clarifies the guarantee the joint arrangements’ ongoing financing.
point in time for determining the exchange rate used to
translate foreign-currency transactions containing advance
payments that have been made or received. The date of the
initial recognition of an asset or liability resulting from advance
164 Consolidated Financial Statements BASF Report 2016
Notes — Policies and scope of consolidation
Companies whose corporate governance structures classify Foreign currency translations: The cost of assets acquired
them as joint arrangements are analyzed to determine if they in foreign currencies and revenue from sales in foreign curren-
meet the criteria for joint ventures or joint operations as per cies are determined by the exchange rate on the date of the
IFRS 11. This requires an analysis of the joint arrangement’s transaction. Foreign currency receivables and liabilities are
structure. Should the arrangement be structured through a valued at the exchange rates on the balance sheet date.
separate vehicle, its legal form, contractual arrangements and Changes in assets and liabilities arising from foreign currency
all other facts and circumstances are reviewed. translation are recognized in the income statement and
In addition to BASF SE, the Consolidated Financial reported under other operating expenses or income, other
Statements include all material subsidiaries on a fully
financial result, and available-for-sale financial assets in other
consolidated and all material joint operations on a propor comprehensive income.
tionally consolidated basis. Companies whose business is Translation of foreign currency financial statements:
dormant or of low volume, and are of secondary importance The translation of foreign currency financial statements
for the presentation of a true and fair view of the net assets, depends on the functional currency of the consolidated
financial position and results of operations, are not conso companies. For companies whose functional currency is not
lidated, but rather are reported under other shareholdings. the euro but a local currency, translation into the reporting
These companies are carried at amortized cost and are written currency is based on the closing rate method: Balance sheet
down in the case of an impairment. The aggregate assets and items are translated into euros using closing rates on the
equity of these companies amount to less than 1% of the balance sheet date; expenses and income are translated into
corresponding value at the Group level. euros at monthly average rates and accumulated for the year.
Joint ventures and associated companies are accounted The difference between a company’s translated equity at
for using the equity method in the Consolidated Financial historical rates at the time of acquisition or retention and its
Statements. Associated companies are entities in which equity at closing rates on the balance sheet date is reported
significant influence can be exercised over their operating and separately in equity under other comprehensive income (trans-
financial policies and which are not subsidiaries, joint ventures lation adjustments) and is recognized in income only upon the
or joint operations. In general, this applies to companies in company’s disposal.
which BASF has an investment of between 20% and 50%. For certain companies outside the eurozone or U.S. dollar
Equity-accounted income is reported as part of income from zone, the euro or U.S. dollar is the functional currency. In such
operations (EBIT). cases, the translation into the functional currency of financial
Consolidation methods: Assets and liabilities of conso statements prepared in the local currency is done according to
lidated companies are uniformly recognized and measured in the temporal method: All nonmonetary assets and related
accordance with the principles described herein. For depreciation and amortization as well as equity are translated
equity-accounted companies, material deviations in measure- at the exchange rate applying to the respective transactions.
ment resulting from the application of other accounting All other balance sheet items are translated using closing rates
principles than those used at BASF are adjusted for. on the balance sheet date; other expenses and income are
Transactions between consolidated companies as well as translated at monthly average rates. The resulting translation
intercompany profits resulting from trade between consoli differences are recognized in the income statement under
dated companies are eliminated in full; for joint operations, other operating income or expenses. If necessary, financial
they are proportionally eliminated. Material intercompany statements in the functional currency are translated into the
profits related to companies accounted for using the equity presentation currency according to the closing rate method.
method are eliminated.
Capital consolidation is conducted at the acquisition date Selected exchange rates (€1 equals)
according to the purchase method. Initially, all assets, liabilities
and additional intangible assets that are to be capitalized are Closing rates Average rates
measured at fair value. Finally, the acquisition cost is com- Dec. 31, Dec. 31,
2016 2015 2016 2015
pared with the proportional share of the net assets acquired at
Brazil (BRL) 3.43 4.31 3.86 3.70
fair value. The resulting positive differences are capitalized as
China (CNY) 7.32 7.06 7.35 6.97
goodwill. Negative differences are reviewed once more, then
Great Britain (GBP) 0.86 0.73 0.82 0.73
recognized directly in the income statement.
Japan (JPY) 123.40 131.07 120.20 134.28
The incidental acquisition costs of a business combination
Malaysia (MYR) 4.73 4.70 4.58 4.33
are recognized in the income statement under other operating
Mexico (MXN) 21.77 18.91 20.67 17.61
expenses.
Norway (NOK) 9.09 9.60 9.29 8.95
Russia (RUB) 64.30 80.67 74.14 68.02
Switzerland (CHF) 1.07 1.08 1.09 1.07
South Korea (KRW) 1,269.36 1,280.78 1,284.18 1,255.98
United States (USD) 1.05 1.09 1.11 1.11
BASF Report 2016 Consolidated Financial S tatements 165
Notes — Policies and scope of consolidation
1.4 Accounting policies Internally generated intangible assets primarily comprise
internally developed software. Such software and other inter-
Revenue recognition nally generated assets are measured at cost and amortized
over their estimated useful lives. Impairments are recognized if
Revenues from the sale of goods or the rendering of services the carrying amount of an asset exceeds the recoverable
are recognized upon the transfer of ownership and risk to the amount. In addition to those costs directly attributable to the
buyer. They are measured at the fair value of the consideration asset, costs of internally generated intangible assets also
received. Sales revenues are reported without sales tax. include an appropriate portion of overhead costs. Borrowing
Expected rebates and other trade discounts are accrued or costs are capitalized to the extent that they apply to the
deducted. Provisions are recognized according to the principle purchase or the period of construction of qualifying assets.
of individual measurement to cover probable risks related to The estimated useful lives and amortization methods of
the return of products, future warranty obligations and other intangible assets are based on historical values, plans and
claims. estimates. These estimates also consider the period and
Revenues from the sale of precious metals to industrial distribution of future cash inflows and outflows. The
customers are recognized at the time of shipment and the weighted average amortization periods of intangible assets
corresponding purchase prices are recorded at cost of sales. amounted to:
In the trading of precious metals and their derivatives with
broker-traders, where there is usually no physical delivery, Average amortization in years
revenues are netted against their corresponding costs.
2016 2015
Revenues from marketing the natural gas from the Yuzhno
Distribution, supply and similar rights 14 14
Russkoye gas field are treated in the same manner.
Product rights, licenses and trademarks 19 18
Income relating to the sale or licensing of technologies or
Know-how, patents and production
technological expertise are recognized in the income state-
technologies 14 12
ment according to the contractually agreed-upon transfer of
Internally generated intangible assets 4 4
the rights and obligations associated with those technologies.
Other rights and values 5 7
Assets
Emission rights: Emission right certificates, granted free of
Acquired intangible assets (excluding goodwill) with charge by the German Emissions Trading Authority (Deutsche
defined useful lives are valued at cost less straight-line Emissionshandelsstelle) or a similar authority in other coun-
amortization. The useful life is determined using the period of tries, are recognized on the balance sheet with a value of zero.
the underlying contract or the period of time over which the Certificates purchased on the market are capitalized at cost as
intangible asset can be expected to be used. intangible assets. Emissions generated create an obligation to
Impairments are recognized if the recoverable amount of surrender the emission certificates. Emission certificates
the asset is lower than the carrying amount. The recoverable purchased on the market are subsequently measured at fair
amount is the higher of either fair value less costs to sell or the value, up to a maximum of the amount of the acquisition costs.
value in use. The value in use is determined on the basis of If the fair value is lower than the carrying amount on the
future cash inflows and outflows, and the weighted average balance sheet date, the emission rights are impaired.
cost of capital after taxes, depending on tax rates and Goodwill is only written down if there is an impairment.
country-related risks. If the reasons for an impairment no
Impairment testing takes place once a year and whenever
longer exist, the write-downs are reversed up to the value of there is an indication of an impairment.
the asset, had an impairment not been recognized. Depending Property, plant and equipment are measured at cost
on the type of intangible asset, amortization is reported under less depreciation and impairment over their useful lives. The
cost of sales, selling expenses, research and development revaluation method is not applied. Low-value assets are fully
expenses or other operating expenses. written off in the year of acquisition.
Intangible assets with indefinite useful lives are trade
names and trademarks that have been acquired as part of
acquisitions. These are measured at cost and tested for
impairment annually, or if there is an indication that their value
has declined.
166 Consolidated Financial Statements BASF Report 2016
Notes — Policies and scope of consolidation
The cost of self-constructed plants includes direct costs, Assets subject to operating leases are not capitalized. Lease
appropriate allocations of material and production overhead payments are recognized in the income statement in the
costs, and a share of the general administrative costs of the period they are incurred.
divisions involved in the construction of the plants. Borrowing A lease is classified as a finance lease if it substantially
costs are capitalized to the extent that they apply to the pur- transfers all the risks and rewards related to the leased asset.
chase or the period of construction of qualifying assets. Assets subject to a finance lease are capitalized at the lower of
Expenditures related to the scheduled maintenance of the fair value of the leased assets or the present value of the
large-scale plants are separately capitalized and depreciated minimum lease payments. A leasing liability is recorded in the
using the straight-line method over the period until the next same amount. The periodic lease payments must be divided
planned turnaround. Costs for the replacement of components into principal and interest components. The principal
are recognized as assets when an additional future benefit is component reduces the outstanding liability, while the interest
expected. The carrying amount of the replaced components is component represents an interest expense. Depreciation
derecognized. Costs for maintenance and repair as part of takes place over the shorter of the useful life of the asset or the
normal business operations are recognized as an expense. period of the lease.
Both movable and immovable fixed assets are for the Leases can be embedded within other contracts. If sepa-
most part depreciated using the straight-line method, with the ration is required under IFRS, then the embedded lease is
exception of production licenses and plants in the Oil & Gas recorded separately from its host contract and each compo-
segment, which are primarily depreciated based on use in nent of the contract is carried and measured in accordance
accordance with the unit of production method. The estimated with the applicable regulations.
useful lives and depreciation methods applied are based on Borrowing costs: Borrowing costs directly incurred as
historical values, plans and estimates. These estimates also part of the acquisition, construction or production of a
consider the period and distribution of future cash inflows and qualifying a sset are capitalized as part of the acquisition or
outflows. The depreciation methods, useful lives and residual production cost of that asset. A qualifying asset is an asset for
values are reviewed at each balance sheet date. The weighted which the time period necessary to make it ready for its
average depreciation periods were as follows: intended use or sale is longer than one year. Borrowing costs
are capitalized up to the date the asset is ready for its intended
Weighted average depreciation in years
use. The borrowing costs were calculated based on a rate of
2016 2015
2.5% (2015: 3.0%) and adjusted on a country-specific basis, if
Buildings and structural installations 22 23
necessary. All other borrowing costs are recognized as an
Machinery and technical equipment 10 10
expense in the period in which they are incurred.
Long-distance natural gas pipelines 25 25
Government grants: Government grants related to the
Miscellaneous equipment and fixtures 7 7
acquisition or construction of property, plant and equipment
reduce the acquisition or construction cost of the respective
assets. Other government grants or government assistance
Impairments are recognized if the recoverable amount of the are recognized immediately as other operating income or
asset is lower than the carrying amount. The measurement is treated as deferred income and reversed over the underlying
based on fair value less costs to sell or the value in use. The period.
value in use is determined on the basis of future cash inflows Investments accounted for using the equity method:
and outflows, and the weighted average cost of capital after The carrying amounts of these companies are adjusted
taxes, depending on tax rates and country-related risks. An annually based on the pro rata share of net income, dividends
impairment is recognized for the difference between the and other changes in equity. Should there be indications of a
carrying amount and the recoverable amount. If the reasons permanent reduction in the value of an investment, an
for an impairment no longer exist, the write-downs are r eversed impairment is recognized in the income statement.
up to the value of the asset, had an impairment not been Inventories are measured at acquisition cost or cost of
recognized. conversion based on the weighted average method. If the
Investment properties held to realize capital gains or rental market price or fair value of the sales product which forms the
income are immaterial. They are valued at the lower of fair basis for the net realizable value is lower, then the sales
value or acquisition cost less depreciation. products are written down to this lower value. The net
Leases: A lease is an agreement whereby the lessor realizable value is the estimated price in the ordinary course of
conveys to the lessee the right to use an asset for an agreed business less the estimated costs of completion and the
period of time in return for a payment or series of payments. estimated selling costs.
Leasing contracts are classified as either finance or operating
leases.
BASF Report 2016 Consolidated Financial S tatements 167
Notes — Policies and scope of consolidation
In addition to direct costs, cost of conversion includes an Deferred tax liabilities are recognized for differences between
appropriate allocation of production overhead costs based on the proportional IFRS equity and the tax base of the invest-
normal utilization rates of the production plants, provided that ment in a consolidated subsidiary if a reversal of these dif
they are related to the production process. Pensions, social ferences is expected in the foreseeable future. Deferred tax
services and voluntary social benefits are also included, as liabilities are recognized for dividend distributions which are
well as allocations for administrative costs, provided they planned for the following year if these distributions lead to a
relate to the production. Borrowing costs are not included in reversal of temporary differences.
cost of conversion. For more information, see Note 11 from page 185 onward
Inventories may be written down if the prices for the sales
products decline, or in cases of a high rate of days sales of Financial instruments
inventory (DSI). Write-downs on inventories are reversed if the Financial assets and financial liabilities are recognized in the
reasons for them no longer apply. balance sheet when the BASF Group becomes a party to a
The exception made by IAS 2 for traders is applied to the financial instrument. Financial assets are derecognized when
measurement of precious metal inventories. Accordingly, the contractual rights to the cash flows from the financial asset
inventories held exclusively for trading purposes are to be
expire or when the financial asset, with all risks and rewards of
measured at fair value less costs to sell. All changes in value ownership, is transferred. Financial liabilities are derecognized
are recognized in the income statement. when the contractual obligation expires, is discharged or
Deferred taxes: Deferred taxes are recorded for tempo- cancelled. Regular-way purchases and sales of financial
rary differences between the carrying amount of assets and instruments are accounted for using the settlement date; in
liabilities in the financial statements and the carrying amounts precious metals trading, the day of trading is used.
for tax purposes as well as for tax loss carryforwards and The fair value of a financial instrument is the amount that
unused tax credits. This also comprises temporary differences would be received to sell an asset or paid to transfer a liability
arising from business combinations, with the exception of in an orderly transaction between market participants at the
goodwill. Deferred tax assets and liabilities are calculated measurement date. When pricing on an active market is
using the respective country-specific tax rates applicable for available, for example on a stock exchange, this price is used
the period in which the asset or liability is realized or settled. for the measurement. Otherwise, the measurement is based
Tax rate changes enacted or substantively enacted on or on internal measurement models using current market
before the balance sheet date are taken into consideration. parameters or external measurements, for example, from
Deferred tax assets are offset against deferred tax liabilities banks. These internal measurements predominantly use the
provided they are related to the same taxation authority and net present value method and option pricing models.
have the same maturities. Surpluses of deferred tax assets are If there is objective evidence of a permanent impairment of
only recognized provided that the tax benefits are likely to be a financial instrument that is not measured at fair value through
realized. The valuation of deferred tax assets is based on the profit or loss, an impairment loss is recognized. If the reason
estimated probability of a reversal of the differences and the for the impairment of loans and receivables as well as
ability to utilize tax loss carryforwards and unused tax credits. held-to-maturity financial instruments no longer exists, the
This depends on whether future taxable profits will exist during impairment is reversed up to the amortized cost and recog-
the period in which temporary differences are reversed and in nized in the income statement. Impairments on financial
which tax loss carryforwards and unused tax credits can be instruments are booked in separate accounts.
claimed. Based on experience and the expected development Financial assets and liabilities are divided into the following
of taxable income, it is assumed that the benefits of the measurement categories:
recognized deferred tax assets will be realized. The valuation ––Financial assets and liabilities at fair value recognized in
of deferred tax assets is based on internal projections of the the income statement consist of derivatives and other
future earnings of the particular Group company. trading instruments. At BASF, this measurement category
Changes in deferred taxes in the balance sheet are only includes derivatives. Derivatives are reported in other
recorded as deferred tax expense or income if the underlying receivables and miscellaneous assets or other liabilities.
transaction is not to be recognized directly in equity or in BASF does not make use of the fair value option under
income and expenses recognized in equity. For those effects IAS 39. The calculation of fair values is based on market
which have been recognized in equity, changes to deferred tax parameters or measurement models based on such
assets and tax liabilities are also recognized directly in equity. parameters. In some exceptional cases, the fair value is
calculated using parameters which are not observable on
the market.
168 Consolidated Financial Statements BASF Report 2016
Notes — Policies and scope of consolidation
––Loans and receivables comprise financial assets with fixed ––Available-for-sale financial assets comprise financial
or determinable payments, which are not quoted on an assets which are not derivatives and do not fall under any of
active market and are not derivatives or classified as
the previously stated valuation categories. This measure-
available-for-sale. This measurement category includes
ment category comprises shareholdings reported under the
trade accounts receivable as well as other receivables and item other financial assets which are not accounted for using
loans reported under other receivables and miscellaneous the equity method as well as short and long-term
assets. Initial measurement is done at fair value, which securities.
generally matches the nominal value of the receivable or The measurement is carried out at fair value. Changes in
loan. Interest-free and low-interest long-term loans and fair value are recognized directly in equity under the item
receivables are recorded at present value. Subsequent
other comprehensive income and are only recognized in the
measurement recognized in income is generally made at income statement when the assets are disposed of or have
amortized cost using the effective interest method. been impaired. Subsequent reversals are recognized directly
If there is objective evidence for an impairment of a in equity (other comprehensive income). Only in the case of
receivable or loan, an individual valuation allowance is made. debt instruments are reversals recognized up to the amount
When assessing the need for a valuation allowance, regional of the original impairment in the income statement; reversals
and sector-specific conditions are considered. In addition, above this amount are recognized directly in equity. If the fair
use is made of internal and external ratings as well as the value of available-for-sale financial assets drops below ac-
assessments of debt collection agencies and credit insurers, quisition costs, the assets are impaired if the d
ecline in value
when available. A portion of receivables is covered by credit is significant and can be considered lasting. The fair values
insurance. Bank guarantees and letters of credit are used to are determined using market prices. S hareholdings whose
an insignificant extent. Valuation allowances are only fair value cannot be reliably determined are carried at acqui-
recognized for those receivables which are not covered by sition cost and are written down in the case of an impair-
insurance or other collateral. The valuation allowances for ment. When determining the value of these shareholdings,
receivables whose insurance includes a deductible are not the acquisition costs constitute the best estimate of their fair
recognized in excess of the amount of the deductible. value. This category of shareholdings includes investments
Write-downs are based on historical values relating to
in other shareholdings, p rovided that these shares are not
customer solvency and the age, period overdue, insurance publicly traded. There are no plans to sell significant stakes
policies and customer-specific risks. In addition, a valuation in these shareholdings.
allowance must be recognized when the contractual ––Financial liabilities which are not derivatives are initially
conditions which form the basis for the receivable are
measured at fair value, which normally corresponds to the
changed through renegotiation in such a way that the amount received. Subsequent measurement is carried out at
present value of the future cash flows decreases. amortized cost, using the effective interest method.
Furthermore, valuation allowances are made on receivables ––Cash and cash equivalents consist primarily of cash on
based on transfer risks for certain countries. hand and bank balances with maturities of less than three
If, in a subsequent period, the amount of the valuation months.
allowance decreases and the decrease can be related
objectively to an event occurring after the valuation allow- There were no reclassifications from one measurement
ance was made, then it must be reversed in the income category to another in 2016 and 2015. The same applies for
statement. Reversals of valuation allowances may not transfers between levels in the fair value hierarchy.
exceed amortized cost. Loans and receivables are derecog- Revenue from interest-bearing assets is recognized on the
nized when they are definitively found to be uncollectible. outstanding receivables on the balance sheet date using
––Held-to-maturity financial assets consist of nonderivative interest rates calculated by means of the effective interest
financial assets with fixed or determinable payments and a method. Dividends from shareholdings not accounted for
fixed term, for which there is the ability and intent to hold using the equity method are recognized when the share
until maturity, and which do not fall under other valuation holders’ right to receive payment is established.
categories. Initial measurement is done at fair value, which Derivative financial instruments can be embedded within
matches the nominal value in most cases. Subsequent other contracts. If IFRS requires separation, then the embed-
measurement is carried out at amortized cost, using the ded derivative is accounted for separately from its host
effective interest method. contract and measured at fair value.
For BASF, there are no material financial assets that fall
under this category.
BASF Report 2016 Consolidated Financial S tatements 169
Notes — Policies and scope of consolidation
Financial guarantees of the BASF Group are contracts that Debt
require compensation payments to be made to the guarantee
holder if a debtor fails to make payment when due under the Provisions for pensions and similar obligations:
terms of the financial guarantee. Financial guarantees given by Provisions for pensions are based on actuarial computations
BASF are measured at fair value upon initial recognition. In made according to the projected unit credit method, which
subsequent periods, financial guarantees are carried at the applies for valuation parameters that include: future develop-
higher of amortized cost or the best estimate of the present ments in compensation, pensions and inflation, employee
obligation on the financial reporting date. turnover and the life expectancy of beneficiaries. The resulting
Cash flow hedge accounting is applied for selected obligations are discounted on the balance sheet date using
deals to hedge future transactions. The effective portion of the the market yields on high-quality corporate fixed-rate bonds
change in fair value of the derivative is thereby recognized with a minimum of one AA rating.
directly in equity under other comprehensive income, taking Similar obligations, especially those arising from commit-
deferred taxes into account. The ineffective portion is ments by North American Group companies to pay the
recognized immediately in the income statement. In the case healthcare costs and life insurance premiums of retired staff
of future transactions that will lead to a nonfinancial asset or a and their dependents, are reported under provisions for similar
nonfinancial debt, the cumulative fair value changes in equity obligations.
are either charged against the acquisition costs on initial The calculation of pension provisions is based on actuarial
recognition or recognized in profit or loss in the reporting
reports.
period in which the hedged item is recorded in the income Actuarial gains and losses from changed estimations with
statement. For hedges based on financial assets or debts, the regard to the actuarial assumptions used for calculating
cumulative fair value changes of the hedges are transferred defined benefit obligations, the difference between
from equity to the income statement in the reporting period in standardized and actual returns on plan assets as well as the
which the hedged item is recognized in the income statement. effects of the asset ceiling are recognized directly in equity as
The maturity of the hedging instrument is determined based other comprehensive income.
on the effective date of the future transaction. For more information on provisions for pensions and similar obligations,
see Note 22 from page 198 onward
When fair value hedges are used, the asset or liability is
hedged against the risk of a change in fair value. Here, c
hanges Other provisions: Other provisions are recognized when there
in the market value of the derivative financial instruments are is a present obligation as a result of a past event and when
recognized in the income statement. Furthermore, the carrying there is a probable outflow of resources whose amount can be
amount of the underlying transaction is adjusted by the profit reliably estimated. Provisions are recognized at the probable
or loss resulting from the hedged risk, offsetting the effect in settlement value.
the income statement. Provisions for German trade income tax, German corporate
income tax and similar income taxes are determined and
Other comprehensive income recognized in the amount necessary to meet the expected
payment obligations less any prepayments that have been
The income and expenses shown in other comprehensive made. Other taxes to be assessed are considered accordingly.
income are divided into two categories. Items that will be
Provisions are established for certain environmental
recognized in the income statement in the future (known as protection measures and risks if there exist present legal or
“recycling”) and items that will not be reclassified to the income constructive obligations arising from a past event, and the
statement in the future. The first category includes translation expected cash outflow can be estimated with sufficient
adjustments, the measurement of securities at fair value, and reliability. Provisions for restoration obligations primarily
changes in the fair value of derivatives held to hedge future concern the filling of wells and the removal of production
cash flows and net investments in a foreign operation. Items in facilities upon the termination of production in the Oil & Gas
other comprehensive income that will not be reclassified to the segment. When the obligation arises, the provision is mea-
income statement at a future date include effects from the sured at the present value of the future restoration costs. An
remeasurement of defined benefit plans. asset is capitalized for the same amount as part of the carrying
amount of the plant concerned and is depreciated along with
the plant. The discount on the provision is unwound annually
until the time of the planned restoration.
170 Consolidated Financial Statements BASF Report 2016
Notes — Policies and scope of consolidation
In addition, other provisions also cover expected costs for flows can differ significantly from the cash flows used to deter-
rehabilitating contaminated sites, recultivating landfills,
mine the fair values. Independent external appraisals are used
removal of environmental contamination from existing pro
for the purchase price allocation of business combinations.
duction or storage sites and similar measures. If BASF is the Valuations in the course of business combinations are based
only responsible party that can be identified, the provision on existing information as of the acquisition date.
covers the entire expected claim. At sites operated together
with one or more partners, the provision generally covers only Oil and gas production: Exploration and development
BASF’s share of the expected claim. The determination of the expenditures are accounted for using the successful efforts
amount of the provision is based on the available technical method. Under this method, costs of successful exploratory
information on the site, the technology used, legal regulations, drilling as well as successful and dry development wells are
and official obligations. capitalized.
Provisions are recognized for expected severance pay- An exploration well is a well located outside of an area with
ments or similar personnel expenses as well as for demolition proven oil and gas reserves. A development well is a well
expenses and other charges related to restructuring measures which is drilled to the depth of a reservoir of oil or gas within an
that have been planned and publicly announced by manage- area with proven reserves.
ment. Exploratory drilling is generally reported under construction
Provisions for long-service and anniversary bonuses are in progress until its success can be determined. When the
predominantly calculated based on actuarial principles. For presence of hydrocarbons is proven such that the economic
contracts signed under the early retirement programs, development of the field is probable, the costs remain
approved supplemental payments are accrued in install-
capitalized as suspended well costs. At least once a year, all
ments until the end of the exemption phase at the latest. suspended wells are assessed from an economic, technical
Accounting and measurement follow the German Accounting and strategic viewpoint to see if development is still intended.
Standards Committee e.V.’s Application Note 1 (IFRS) of If this is not the case, the capitalized costs for the well in ques-
December 2012. tion are impaired. When reserves are proven, the exploration
Other provisions also cover risks resulting from legal dis- wells are reclassified as machinery and technical equipment
putes and proceedings, provided the criteria for recognizing a when production begins.
provision are fulfilled. In order to determine the amount of the Production costs include all costs incurred to operate,
provisions, the Company takes into consideration the facts repair and maintain the wells as well as the associated plant
related to each case, the size of the claim, claims awarded in and ancillary production equipment, including the associated
similar cases and independent expert advice as well as depreciation.
assumptions regarding the probability of a successful claim The unit of production method is used to depreciate assets
and the range of possible claims. The actual costs can deviate from oil and gas production at the field or reservoir level.
from these estimates. Depreciation is generally calculated on the basis of the
For more information, see Note 26 on page 207 production of the period in relation to the proven, developed
The probable amount required to settle noncurrent reserves.
provisions is discounted if the effect of discounting is material. Exploration expenses pertain exclusively to the Oil & Gas
In this case, the provision is recognized at present value. segment and include all costs related to areas with unproven
Assumptions must be made in determining the discount rate oil or gas deposits. These include costs for the exploration of
used for calculating noncurrent provisions. Financing costs areas with possible oil or gas deposits, among others. Costs
related to unwinding the discount on provisions in subsequent for geological and geophysical investigations are always
periods are shown in other financial result. reported under exploration expenses. In addition, this item
includes valuation allowances for capitalized expenses for
Other accounting policies exploration wells which did not encounter proven reserves.
Depreciation of successful exploratory drilling is reported
Business combinations: In business combinations, the under cost of sales.
acquired assets and liabilities are recognized at fair value on An Exploration and Production Sharing Agreement is a
the date the acquirer effectively obtains control. The fair value type of contract in crude oil and gas concessions whereby the
of acquired assets and assumed liabilities at the date of expenses and profits from the exploration, development and
exchange, as well as the useful lives of the acquired assets, production phases are divided between the state and one or
are determined on the basis of assumptions. The measure- more exploration and production companies using defined
ment is largely based on projected cash flows. The actual cash keys. The revenue BASF is entitled to under such contracts is
reported as sales.
BASF Report 2016 Consolidated Financial S tatements 171
Notes — Policies and scope of consolidation
The intangible asset from the marketing contract for natural Impairment tests are based on a comparison of the carrying
gas from the Yuzhno Russkoye natural gas field is amortized amount and the recoverable amount. The recoverable amount
based on BASF’s share of the produced and distributed is the higher of fair value less costs to sell and the value in use.
volumes. As a rule, value in use is determined using the discounted cash
Intangible assets in the Oil & Gas segment relate primarily flow method. The estimation of cash flows and the assump-
to exploration and production rights. During the exploration tions used consider all information available on the respective
phase, these are not subject to amortization but are tested for balance sheet date on the future development of the operating
impairment annually. When economic success is determined, business. Actual future developments may vary. Impairment
the rights are amortized in accordance with the unit of testing relies upon the cash-generating unit’s long-term
production method. earnings forecasts, which are based on economic trends. The
weighted average cost of capital (WACC) based on the Capital
Use of estimates and assumptions in preparing the Asset Pricing Model plays an important role in impairment
Consolidated Financial Statements testing. It comprises a risk-free rate, the market risk premium
and the spread for the credit risk. Additional important
The carrying amount of assets, liabilities and provisions, assumptions are the forecasts for the detailed planning period
contingent liabilities and other financial obligations in the
and the terminal growth rates used.
Consolidated Financial Statements depends on the use of
For more information, see Note 14 from page 189 onward
estimates, assumptions and use of discretionary scope. An impairment is recognized if the recoverable amount of
Specific estimates or assumptions used in individual the asset is lower than the carrying amount. The impairment of
accounting or valuation methods are disclosed in their
the asset (excluding goodwill) is made in the amount of the
respective sections. They are based on the circumstances and difference between these amounts.
estimates on the balance sheet date and affect the reported The goodwill impairment test is based on cash-generating
amounts of income and expenses during the reporting periods. units. At BASF, the cash-generating units are predominantly
These assumptions particularly concern discounted cash the business units, or in certain cases, the divisions. If there is
flows in the context of impairment tests and purchase price a need for a valuation allowance, the existing goodwill is, if
allocations; the determination of useful lives of property, plant necessary, completely written off as a first step. If there is
and equipment and intangible assets; the carrying amount of further need for a valuation allowance, this is allocated to the
investments; and the measurement of provisions for such remaining assets of the cash-generating unit. Goodwill
things as employee benefits, warranties, trade discounts, impairments are reported under other operating expenses.
environmental protection and taxes. Although uncertainty is Impairment reversals are not conducted for goodwill.
appropriately incorporated in the valuation factors, actual
results can differ from these estimates.
The assumptions for oil and gas prices concern internal
company projections. The projections are based on an
empirical analysis of the global oil and gas supply and demand.
Short-term estimates up to three years consider the current
prices on active markets or forward transactions. In long-term
estimates, assumptions are made regarding factors such as
inflation, production quantities and costs as well as energy
efficiency and the substitution of energy sources. Using
external sources and reports, the oil and gas price estimates
are regularly checked for plausibility.
Impairment tests on assets are carried out whenever certain
triggering events indicate that an impairment may be neces-
sary. External triggering events include, for example, changes
in customer industries, technologies used and economic
downturns. Internal triggering events for an impairment test
include lower product profitability, planned restructuring
measures or physical damage to assets.
172 Consolidated Financial Statements BASF Report 2016
Notes — Policies and scope of consolidation
2 Scope of consolidation
2.1 Changes in scope of consolidation First-time consolidations in 2015 comprised:
In 2016, the scope of consolidation for the Consolidated ––one newly acquired company headquartered in Japan
Financial Statements encompassed 294 companies (2015:
––four companies which had previously not been consolidated,
258). Of this number, 46 companies were first-time consoli headquartered in Germany, China, India and Pakistan
dations (2015: five). Since the beginning of 2016, a total of ten
companies (2015: 28) were deconsolidated due to divestiture, While BASF does not hold majority shares in ZAO Gazprom
merger, liquidation or immateriality. YRGM Trading, BASF is entitled to the earnings of the com
pany due to profit distribution arrangements, so that the
First-time consolidations in 2016 comprised: company is fully consolidated in the Group Consolidated
––33 companies in connection with the acquisition of Chemetall Financial Statements.
registered in all regions A list of companies included in the Consolidated Financial
––Two newly established companies with headquarters in the Statements and a list of all companies in which BASF SE has
regions Asia-Pacific and North America a shareholding as required by Section 313(2) of the German
––11 companies headquartered in all regions which had not Commercial Code is provided in the List of Shares Held.
been consolidated at the time of the first inclusion in the For more information, see Note 3 on page 178
Consolidated Financial Statements. Thereof eight were For more information, see basf.com/en/governance
newly established in 2016.
Scope of consolidation
South
America,
Thereof North Africa,
Europe Germany America Asia Pacific Middle East 2016 2015
As of January 1 141 55 37 57 23 258 281
Thereof proportionally consolidated 6 – – 1 – 7 7
First-time consolidations 21 4 5 16 4 46 5
Thereof proportionally consolidated – – – 1 – 1 –
Deconsolidations 8 2 – 2 – 10 28
Thereof proportionally consolidated – – – – – – –
As of December 31 154 57 42 71 27 294 258
Thereof proportionally consolidated 6 – – 2 – 8 7
Overview of impact of changes to the scope of consolidation (excluding acquisitions and divestitures)1
2016 2015
Million € % Million € %
Sales . 0.0 48 0.1
Noncurrent assets 5 0.0 29 0.1
Thereof property, plant and equipment 1 0.0 15 0.1
Current assets (3) 0.0 41 0.2
Thereof cash and cash equivalents 1 0.1 4 0.2
Assets 2 0.0 70 0.1
Equity (2) 0.0 (7) 0.0
Noncurrent liabilities . 0.0 (3) 0.0
Thereof financial indebtedness – – – –
Current liabilities 4 0.0 80 0.6
Thereof financial indebtedness 2 0.1 9 0.2
Total equity and liabilities 2 0.0 70 0.1
Other financial obligations – – 41 0.1
1
The amounts from the deconsolidation of Wintershall Noordzee B.V. in connection with the asset swap with Gazprom are not shown in this table, but included in the table of
assets and liabilities transferred as a result of the asset swap with Gazprom in Note 2.4 on page 177.
BASF Report 2016 Consolidated Financial S tatements 173
Notes — Policies and scope of consolidation
2.2 Joint operations Non-material joint ventures a ccounted for using the equity
Proportionally consolidated joint operations particularly method particularly comprise:
comprise: ––Wintershall Noordzee B.V., Rijswijk, Netherlands, which is
––Ellba C.V., Rotterdam, Netherlands, which is operated operated jointly with Gazprom (BASF stake: 50%)
jointly with Shell and produces propylene oxide and styrene –– N.E. Chemcat Corporation, Tokyo, Japan, which is operated
monomer jointly with Sumitomo Metal Mining Co. Ltd. (BASF stake: 50%)
––AO Achimgaz, Novy Urengoy, Russia, which is jointly ––Heesung Catalysts Corporation, Seoul, South Korea, which
operated with Gazprom for the production of natural gas is operated jointly with Heesung (BASF stake: 50 %)
and condensate
––BASF DOW HPPO Production B.V.B.A., Antwerp, Belgium, Non-material joint ventures accounted for using the equity method
which is operated jointly with The Dow Chemical Company (BASF stake) (million €)
to produce propylene oxide
2016 2015
Carrying amount accounted for using the equity
BASF holds a 50% share in each of these companies and method as of the beginning of the year 825 506
controls them jointly with the respective partner. The compa- Proportional net income (9) (7)
nies sell their products directly to the partners. The partners Proportional change of other comprehensive
ensure the ongoing financing of the companies by purchasing income 19 28
the production. They were therefore classified as joint opera- Total comprehensive income 10 21
tions in accordance with IFRS 11. Capital measures/dividends/changes in the scope of
consolidation/other adjustments (8) 333
2.3 Joint ventures and associated companies Other adjustments of income and expense (4) (35)
The only material joint venture accounted for using the equity Carrying amount accounted for using the equity
method as of the end of the year 823 825
method is BASF-YPC Company Ltd., Nanjing, China, which
operates the Verbund site in Nanjing together with Sinopec.
BASF’s stake comprises 50%. Material associated companies accounted for using the
equity method particularly comprise:
Financial information on BASF-YPC Company Ltd., Nanjing, China
(Million €)
––Joint Stock Company Achim Trading, Moscow, Russia
(BASF stake: 18.01%, economic share: 25.01%), which to-
2016 2015 gether with Gazprom, will market the o utput from blocks IV
Balance sheet and V of the Achimov formation. The investment value in the
Noncurrent assets 1,515 1,779 amount of €768 million remained unchanged in comparison
Current assets 842 741 with the previous year and arose from the fair value mea-
Thereof marketable securities, cash and surement as a result of the asset swap with Gazprom on
cash equivalents 190 69 September 30, 2015. The company’s economic activities
Assets 2,357 2,520 will commence in 2018 with the scheduled start of produc-
tion in blocks IV and V. Therefore, there is no relevant finan-
Equity 1,760 1,533 cial information to report according to IFRS 12 in 2016
Noncurrent liabilities 204 441 ––GASCADE Gastransport GmbH, Kassel, Germany (BASF
Thereof financial indebtedness 190 372 stake: 49.97%, voting rights: 50.02%)
Current liabilities 393 546
Thereof financial indebtedness 107 270
Total equity and liabilities 2,357 2,520
Statement of income
Sales 2,358 2,212
Depreciation, amortization and
impairments 214 282
Interest income 3 4
Interest expenses 23 34
Income taxes 110 22
Net income 332 64
Carrying amount according to the equity method
as of the beginning of the year 768 757
Proportional net income 166 32
Proportional change of other comprehensive
income (26) 52
Total comprehensive income 140 84
Capital measures/dividends/changes in the scope of
consolidation/other adjustments (27) (73)
Other adjustments of income and expenses – –
Carrying amount according to the equity method
as of the end of the year 881 768
174 Consolidated Financial Statements BASF Report 2016
Notes — Policies and scope of consolidation
Financial information on GASCADE Gastransport GmbH, Kassel, Non-material associated companies accounted for using the e
quity
Germany (million €) method (BASF stake) (million €)
2016 2015 2016 2015
Balance sheet Carrying amount according to the equity method
Noncurrent assets 670 750 as of the beginning of the year 1,434 1,343
Current assets 39 62 Proportional net income 109 204
Thereof marketable securities, cash and Proportional change of other comprehensive
cash equivalents 15 4 income 100 (21)
Assets 709 812 Total comprehensive income 209 183
Capital measures/dividends/changes in the scope of
consolidation/other adjustments (90) (103)
Equity 370 398
Other adjustments of income and expense 1 11
Noncurrent liabilities 292 400
Carrying amount according to the equity method
Thereof financial indebtedness – – as of the end of the year 1,554 1,434
Current liabilities 47 14
Thereof financial indebtedness – –
Total equity and liabilities 709 812 Due to the corporate governance structure of NEL Gastrans-
port GmbH and GASCADE Gastransport GmbH – both based
Statement of income in Kassel, Germany – in connection with requirements of
Sales 368 442 Section 10 of the Energy Management Act (EnWG), BASF only
Depreciation, amortization and impairments 126 131 exercises significant influence over both companies, despite
Interest income – – voting rights of over 50%.
Interest expenses 2 5
Income taxes 20 17 2.4 Acquisitions and divestitures
Net income 101 92
Acquisitions
Carrying amount according to the equity In 2016, BASF acquired the following activities:
method as of the beginning of the year 641 639 ––On September 26, 2016, BASF concluded the acquisition of
Proportional net income 51 46 Guangdong Yinfan Chemistry (“Yinfan”), Jiangmen, China,
Proportional change of other comprehensive and integrated the activities in the Coatings division. This
income – – acquisition enabled BASF to add the Yinfan product range
Total comprehensive income 51 46 to its portfolio of automotive refinish coatings in Asia Pacific
Capital measures/dividends/changes in the scope and gain access to a state-of-the-art production plant for
of consolidation/other adjustments (64) (44)
automotive refinish coatings in China
Other adjustments of income and expense (7) –
––On December 14, 2016, BASF concluded the acquisition of
Carrying amount according to the equity
method as of the end of the year 621 641 the global surface treatment provider Chemetall from
Albemarle Corporation, Charlotte, North Carolina. The
Non-material accounted for using the equity method asso acquisition supplements the Coating division’s portfolio in
ciated companies particularly comprise: the area of customized technology and system solutions for
–– OAO Severneftegazprom, Krasnoselkup, Russia (BASF the treatment of surfaces. The purchase price, subject to
stake: 25%, economic share: 35%) usual adjustments to the net financial debt and net working
–– Nord Stream AG, Zug, Switzerland, was classified as an capital, amounted to $3.1 billion
associated company even though BASF only has a
15.5% share, as it exercises significant influence over the
company due to the fact that its approval is required for
relevant board resolutions
–– NEL Gastransport GmbH, Kassel, Germany (BASF stake:
49.97%, voting rights: 50.02%)
–– Wintershall AG, Kassel, Germany, which operates Libyan
exploration and production activities together with Gazprom
Libyen Verwaltungs GmbH (BASF stake: 51%). Despite an
investment of 51%, BASF does not exercise control accord-
ing to IFRS 10, as contractual arrangements with the Libyan
government strictly limit influence on variable returns after
income taxes
BASF Report 2016 Consolidated Financial S tatements 175
Notes — Policies and scope of consolidation
The preliminary fair values of the assets and liabilities of The purchase price allocations consider all the facts and cir
Chemetall as of December 14, 2016, were as follows: cumstances prevailing as of the respective dates of acquisition
which were known prior to the preparation of the Consolidated
Preliminary purchase price allocation of the assets and liabilities Financial Statements. In accordance with IFRS 3, should
of Chemetall as of December, 14, 2016
further facts and circumstances become known within the
(Million €)
12-month measurement period, the purchase price allocation
Fair value will be adjusted accordingly.
at time of
acquisition
In 2015, BASF acquired the following activities:
Goodwill 1,545
––On February 12, 2015, BASF concluded the acquisition,
Other intangible assets 1,223
announced on December 8, 2014, of the business from
Property, plant and equipment 139
Taiwan Sheen Soon Co., Ltd. (TWSS), Lukang Town, Taiwan.
Investments accounted for using the equity method 36
TWSS is a leading manufacturer of precursors for adhesives
Other financial assets 9
based on thermoplastic polyurethanes (TPU). Following
Deferred taxes 5
receipt of the official approval, BASF also took over TWSS’s
Other receivables and miscellaneous assets 15
activities on the Chinese mainland, effective Decem-
Noncurrent assets 2,972
ber 1, 2015. The takeover consolidated BASF’s market
position in the areas of TPU extrusion and injection molding
Inventories 79
for various industries. BASF can now offer its customers
Accounts receivable, trade 156
complete solutions for TPUs and TPU adhesives. At BASF,
Other receivables and miscellaneous assets 41
the activities have been integrated in the Performance
Marketable securities –
Materials division
Cash and cash equivalents 81
––On February 18, 2015, BASF took over technologies,
Current assets 357
patents and know-how for silver nanowires from Seashell
Total assets 3,329
Technology LLC, based in San Diego, California. Through
this acquisition, BASF has extended its product portfolio for
Provisions for pensions and similar obligations 88
displays in the Electronic Materials business unit, which is
Other provisions 26
part of the Monomers division
Deferred taxes 229
––On February 24, 2015, BASF acquired a 66% share from
Financial indebtedness –
TODA KOGYO CORP., based in Hiroshima, Japan, in a
Other liabilities 13
company to which TODA had contributed its business with
Noncurrent liabilities 356
cathode materials for lithium-ion batteries, patents and
production capacities in Japan. The transaction had been
Accounts payable, trade 73
announced on October 30, 2014. The company focuses on
Provisions 23
the research, development, production, marketing and sales
Tax liabilities 11
of a number of cathode materials. At BASF, the activities
Financial indebtedness –
were assigned to the Catalysts division
Other liabilities 30
––On March 31, 2015, BASF concluded the acquisition of the
Current liabilities 137
polyurethane (PU) business from Polioles, S.A. de C.V.,
Liabilities 493
based in Lerma, Mexico, that was announced on
July 10, 2014. Polioles is a joint venture with the Alpek
Total purchase price1 2,836
Group. BASF holds a 50% share, which is accounted for
To cover foreign currency risk, a part of the purchase price denominated in U.S. dollars using the equity method. The acquisition comprised
1
was hedged.
marketing and selling rights, current assets, and to a minor
For more information, see Note 27 from page 208 onward
extent, production f acilities. The business has been assigned
Goodwill in the amount of €1,545 million resulted primarily to the Performance Materials division
from sales synergies, arising from the expansion of the port ––On April 23, 2015, BASF concluded an agreement with
folio as well as cost synergies to a minor extent. Chemetall Lanxess Aktiengesellschaft, based in Cologne, Germany,
contributed €32 million to sales in the fiscal year 2016 and on the acquisition and use of technologies and patents for
minus €5 million to net income. With the consolidation of the production of high-molecular-weight polyisobutene (HM
Chemetall in the Consolidated Financial Statements of BASF PIB). The transaction furthermore included the acquisition of
as of January 1, 2016, sales would have amounted to selling rights and current assets as well as a manufacturing
€768 million and net income €77 million. These proforma agreement in which Lanxess will produce HM PIB exclusively
results are for comparison purposes and do not necessarily for BASF. The activities were allocated to the Performance
represent the results had the transaction taken place on Chemicals division
January 1, 2016, and are not indicative of future developments
and results. The following overview shows the effects of the acquisitions
The purchase prices for businesses acquired in 2016 conducted in 2016 and 2015 on the Consolidated Financial
totaled €2,872 million; as of December, 31, 2016, payments Statements. If acquisitions resulted in the transfer of assets or
made for these amounted to €2,849 million. The purchase the assumption of additional liabilities, these are shown as a
price allocations were based on valuations in accordance with net impact.
IFRS 3. The resulting goodwill amounted to €1,552 million.
176 Consolidated Financial Statements BASF Report 2016
Notes — Policies and scope of consolidation
Effects of acquisitions and changes in the preliminary purchase price allocations
2016 2015
Million € % Million € %
Goodwill 1,552 15.4 26 0.3
Other intangible assets 1,237 24.3 62 1.5
Property, plant and equipment 155 0.6 72 0.3
Financial assets 45 0.9 – –
Other noncurrent assets 20 0.5 9 0.5
Noncurrent assets 3,009 6.0 169 0.4
Current assets 358 1.4 74 0.3
Thereof cash and cash equivalents 81 5.9 – –
Total assets 3,367 4.4 243 0.3
Equity – – 42 0.1
Noncurrent liabilities 356 1.2 (40) (0.2)
Thereof financial indebtedness – – – –
Current liabilities 162 1.1 95 0.7
Thereof financial indebtedness – – – –
Total equity and liabilities 518 0.7 97 0.1
Payments made for acquisitions 2,849 146
Divestitures In 2015, BASF divested the following activities:
In 2016, BASF sold the following activities: ––On March 31, 2015, BASF sold its white expandable poly
––On June 30, 2016, BASF concluded the sale of its global styrene (EPS) business in North and South America to Alpek
polyolefin catalysts business to W. R. Grace & Co., Columbia, S.A.B. de C.V., based in Monterrey, Mexico. The sale com-
Maryland. The transaction involved technologies, patents, prised customer lists and current assets in addition to pro-
brands and the transfer of production plants in Pasadena, duction facilities in Canada, Brazil, Argentina and the United
Texas, and Tarragona, Spain. Around 170 employees trans- States. The disposed activities had been part of BASF’s
ferred to Grace. These activities had been assigned to the Performance Materials division. The shares in Aislapol S.A.,
Catalysts division based in Santiago de Chile, Chile, were also sold. Polioles, a
––On August 26, 2016, BASF sold its worldwide photoinitiator joint venture accounted for using the equity method, trans-
business to IGM Resins B.V., Waalwijk, Netherlands. The ferred its white EPS business to Alpek
transaction included technologies, patents, brands, – –On June 30, 2015, BASF concluded the divestiture of
customer relations, business-related contracts, inventories, its global textile chemicals business to Archroma Tex-
and a production site in Mortara, Italy. The sale affected 120 tiles S.à r.l., Luxembourg. The portfolio comprised products
employees worldwide for pretreatment, printing and coating. The transaction fur-
––On December 14, 2016, BASF sold the Coatings division’s thermore involved the transfer of the subsidiary BASF Paki-
industrial coatings business to the AkzoNobel Group. The stan (Private) Ltd., based in Karachi, Pakistan, completed in
transaction included technologies, patents and trademarks, the third quarter of 2015. The textile chemicals business had
customer relations, inventories as well as the transfer of two been part of the Performance Chemicals division
production sites in England and in South Africa. BASF ––Effective July 1, 2015, BASF sold its 25% share in SolVin to
generated around €300 million in sales in the industrial
its partner, Solvay. SolVin was established in 1999 by Solvay
coatings business in 2015 and BASF for the production of polyvinylchloride (PVC). At
BASF, the SolVin investment and the income associated
with it had been allocated to the Monomers division
BASF Report 2016 Consolidated Financial S tatements 177
Notes — Policies and scope of consolidation
––On September 30, 2015, BASF concluded the agreed-upon gas storage facility in Haidach, Austria. BASF also transferred
sale of portions of its pharmaceutical ingredients and services its 50% share in each of the natural gas trading companies
business to Siegfried Holding AG, based in Zofingen, Wintershall Erdgas Handelshaus GmbH & Co. KG, Berlin,
Switzerland. This involved the custom synthesis business and Germany, and Wintershall Erdgas Handelshaus Zug AG, Zug,
parts of the active pharmaceutical ingredients portfolio. The Switzerland. Gazprom furthermore became a 50% share
transaction comprised the divestiture of the production sites holder in Wintershall Noordzee B.V. in Rijswijk, Netherlands,
in Minden, Germany; Evionnaz, Switzerland; and Saint- which is active in the exploration and production of natural gas
Vulbas, France. At BASF, the activities had been allocated to and crude oil deposits in the North Sea.
the Nutrition & Health division
–– On November 1, 2015, BASF divested its global paper The following overview shows the individual components of
hydrous kaolin business to Imerys Kaolin, Inc., Roswell,
BASF’s profit realization from the asset swap with Gazprom
Georgia. The divestiture included the kaolin processing and the transfer of Wintershall Noordzee B.V.: The final
production site in Wilkinson County, Georgia. The activities purchase price allocation resulted in an adjustment of the fair
at BASF had been allocated to the Performance Chemicals value of the shareholding in Wintershall Noordzee B.V. and the
division compensation payment, and reduced disposal gains by
€17 million to €297 million.
Asset swap with Gazprom
In its Oil & Gas segment, BASF concluded the swap of assets Profit realization from asset swap with Gazprom and
transfer of Wintershall Noordzee B.V.
of equal value with Gazprom on September 30, 2015, with
(Million €)
retroactive economic effect to April 1, 2013. As a result of the
transaction, BASF received an economic share of 25.01% in Dec. 31, Dec. 31,
blocks IV and V of the Achimov formation of the Urengoy 2016 2015
natural gas and condensate field in western Siberia. According Fair value 25.01% Achimov IV/V 779 779
to the development plan originally confirmed by Russian Fair value 50% Wintershall Noordzee B.V. 392 407
authorities, blocks IV and V have total hydrocarbon resources Disposed share of net assets (808) (808)
of 274 billion cubic meters of natural gas and 74 million metric Expected compensation payment and other
expenses (66) (64)
tons of condensate. Production is scheduled to start up in
Income from swap and reclassification 297 314
2018.
In return, BASF transferred its shares in the previously
jointly run natural gas trading and storage business to The following overview shows the effects of the divestitures
Gazprom. This included the 50.02% shares in the following: conducted in 2016 and 2015 in the Consolidated Financial
the natural gas trading company WINGAS GmbH, Kassel, Statements. The previous year includes the effects of the asset
Germany; the storage company astora GmbH & Co. KG, swap with Gazprom. The line item sales reflects the year-on-
Kassel, Germany, which operates natural gas storage facilities year decline resulting from divestitures. The impact on equity
in Rehden and Jemgum, Germany; and WINGAS Hold- relates mainly to gains and losses from divestitures.
ing GmbH, Kassel, Germany, including its share in the natural
Effects of divestitures and the change in the preliminary purchase price allocation for the asset swap with Gazprom
2016 2015
Million € % Million € %
Sales (10,718) (15.2) (3,948) (5.6)
Noncurrent assets (234) (0.5) (408) (0.9)
Thereof property, plant and equipment (97) (0.4) (1,276) (5.1)
Current assets (64) (0.3) (2,199) (9.0)
Thereof cash and cash equivalents – – (285) (12.7)
Total assets (298) (0.4) (2,607) (3.7)
Equity 467 1.4 185 0.6
Noncurrent liabilities (63) (0.2) (942) (3.8)
Thereof financial indebtedness – – – –
Current liabilities (1) . (1,148) (8.1)
Thereof financial indebtedness – – (1) 0.0
Total equity and liabilities 403 0.5 (1,905) (2.7)
Payments received from divestitures 701 702
178 Consolidated Financial Statements BASF Report 2016
Notes — Policies and scope of consolidation
3 BASF Group List of Shares Held in accordance with Section 313(2) of the German
Commercial Code
The list of consolidated companies and the complete list of all udited Consolidated Financial Statements submitted to the
a
companies in which BASF SE has a share as required by electronic Federal Gazette. The list of shares held is also
Section 313(2) of the German Commercial Code and infor published online.
mation for exemption of subsidiaries from accounting and For more information, see basf.com/en/governance
disclosure obligations are an integral component of the
4 Reporting by segment and region
BASF’s business is conducted by thirteen operating divisions The Oil & Gas segment comprises the division of the same
aggregated into five segments for reporting purposes. The name. As part of an asset swap at the end of the third quarter
divisions are allocated to the segments based on their business of 2015, BASF transferred to Gazprom the natural gas trading
models. and storage business previously operated together with
The Chemicals segment entails the classical chemicals Gazprom. Since October 1, 2015, the segment has concen-
business with basic chemicals and intermediates. It forms the trated on the exploration and production of oil and gas-rich
core of BASF’s Production Verbund and is the starting point regions in Europe, North Africa, Russia, South America and
for a majority of the value chains. In addition to supplying the the Middle East as well as on the transport of natural gas
chemical industry and numerous other sectors, Chemicals together with partner Gazprom.
ensures that other BASF segments are supplied with chemi- Activities not assigned to a particular division are report-
cals for producing downstream products. The Chemicals ed under Other. These include the sale of raw materials,
segment comprises the Petrochemicals, Monomers and engineering and other services, rental income and leases, the
Intermediates divisions. production of precursors not assigned to a particular segment,
The Performance Products segment consists of the the steering of the BASF Group by corporate headquarters,
Dispersions & Pigments, Care Chemicals, Nutrition & Health and cross-divisional corporate research. Cross-divisional
and Performance Chemicals divisions. Customized products corporate research, which has been restructured in the context
and solutions allow customers to make their production of the newly developed innovation approach, works on long-
processes more efficient or to give their products improved term topics of strategic importance to the BASF Group.
application properties. As of January 1, 2017, the activities of Furthermore, it focuses on the development of specific key
the Monomers and Dispersions & Pigments divisions for the technologies, which are of central importance for the divisions.
Electronic Industry will be merged in the global business unit Plant biotechnology research is also part of cross-divisional
Electronic Materials in the Dispersions & Pigments division corporate research.
within the Performance Products segment. BASF thereby Earnings from currency conversion that are not allocated
strengthens its position as a strategic partner for the large to the segments are also reported under Other, as are earnings
electronic producers. from the hedging of raw material prices and foreign currency
The Functional Materials & Solutions segment bundles exchange risks. Furthermore, income and expenses from the
system solutions, services and innovative products for specific long-term incentive (LTI) program are shown here.
sectors and customers, especially the automotive, electrical, Transfers between the segments are generally executed at
chemical and construction industries, as well as applications adjusted market-based prices which take into account the
for household, sports and leisure. It is made up of the Catalysts, higher cost efficiency and lower risk of Group-internal
Construction Chemicals, Coatings, and Performance Materi- transactions. Assets, as well as their depreciation and
als divisions. amortization, are allocated to the segments based on
The Agricultural Solutions segment includes the Crop economic control. Assets used by more than one segment are
Protection division. It provides innovative solutions in the areas allocated based on the percentage of usage.
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.
BASF Report 2016 Consolidated Financial S tatements 179
Notes — Policies and scope of consolidation
Income from operations (EBIT) of Other (million €)
2016 2015
Costs for cross-divisional corporate research (395) (402)
Costs of corporate headquarters (222) (233)
Other businesses 39 170
Foreign currency results, hedging and other measurement effects (331) (220)
Miscellaneous income and expenses (182) (300)
Income from operations of Other (1,091) (985)
Income from operations of Other decreased by €106 million cross-divisional corporate research as well as costs of
year-on-year to minus €1,091 million. Income from other corporate headquarters decreased by €7 million and
businesses fell by €131 million to €39 million. The line item €11 million, respectively. The line item miscellaneous income
foreign currency results, hedging and other measurement and expenses amounted to minus €182 million compared
effects decreased by €111 million to minus €331 million. with minus €300 million in the previous year, which included
Higher additions to provisions in comparison with the previous expenses for BASF’s 150th anniversary celebrations among
year for the long-term incentive (LTI) program were partially other things.
compensated by lower currency losses. The costs for
Assets of Other (million €)
December 31, 2016 December 31, 2015
Assets of businesses included in Other 1,959 2,097
Financial assets 605 526
Deferred tax assets 2,513 1,791
Cash and cash equivalents/marketable securities 1,911 2,262
Defined benefit assets 66 133
Other receivables/prepaid expenses 2,320 2,823
Assets of Other 9,374 9,632
Reconciliation reporting Oil & Gas (million €)
2016 2015
Income from operations 499 1,072
Net income from shareholdings 6 (6)
Other income (74) 267
Income before taxes and minority interests 431 1,333
Income taxes 7 (168)
Income before minority interests 438 1,165
Minority interests (76) (115)
Net income 362 1,050
The reconciliation reporting Oil & Gas reconciles the income income from operations, as the excess amounts received over
from operations in the Oil & Gas segment with the contribution the last ten years were compensated in 2016, as contractually
of the segment to the net income of the BASF Group. agreed with our partner, Gazprom.
Income from operations in 2016 declined significantly in Impairments for exploration and production licenses in the
comparison with the previous year. This was essentially a Oil & Gas segment dampened income from operations by
result of lower oil and gas prices in the first three quarters of €609 million in 2015.
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
180 Consolidated Financial Statements BASF Report 2016
Notes — Policies and scope of consolidation
The Oil & Gas segment’s other income relates to income and Positive income taxes in 2016 were primarily a result of the
expenses not included in the segment’s income from opera- calculation of taxable income in Norway.
tions, interest result and other financial result. As in the
previous year, other income largely consisted of currency
effects from Group loans.
Segments 2016 (million €)
Functional
Perfor- Mate- Agri-
mance rials & cultural BASF
Chemicals Products Solutions Solutions Oil & Gas Other Group
Sales 13,461 15,002 18,732 5,569 2,768 2,018 57,550
Intersegmental transfers 4,836 465 736 33 331 1 6,402
Sales including intersegmental transfers 18,297 15,467 19,468 5,602 3,099 2,019 63,952
Income from operations 1,983 1,648 2,199 1,037 499 (1,091) 6,275
Assets 13,486 14,549 17,359 8,899 12,829 9,374 76,496
Thereof goodwill 62 2,227 3,909 2,093 1,712 70 10,073
other intangible assets 144 1,219 2,305 263 1,121 37 5,089
property, plant and equipment 8,111 5,183 4,065 1,543 6,678 833 26,413
investments accounted for using
the equity method 1,027 193 423 − 2,581 423 4,647
Debt 4,720 5,652 4,328 1,853 2,190 25,185 43,928
Research and development expenses 182 362 393 489 39 398 1,863
Additions to property, plant and equipment and
intangible assets 1,213 864 3,679 266 1,115 121 7,258
Amortization of intangible assets and
depreciation of property, plant and equipment 1,186 874 707 268 1,097 119 4,251
Thereof impairments 86 26 152 31 4 16 315
Segments 2015 (million €)
Functional
Perfor- Mate- Agri-
mance rials & cultural BASF
Chemicals Products Solutions Solutions Oil & Gas Other Group
Sales 14,670 15,648 18,523 5,820 12,998 2,790 70,449
Intersegmental transfers 5,300 463 873 28 766 (3) 7,427
Sales including intersegmental transfers 19,970 16,111 19,396 5,848 13,764 2,787 77,876
Income from operations 2,131 1,340 1,607 1,083 1,072 (985) 6,248
Assets 12,823 14,232 13,341 8,435 12,373 9,632 70,836
Thereof goodwill 58 2,201 2,326 2,048 1,660 70 8,363
other intangible assets 155 1,428 1,181 342 1,030 38 4,174
property, plant and equipment 7,933 4,958 3,645 1,488 6,421 815 25,260
investments accounted for using
the equity method 840 195 387 − 2,589 425 4,436
Debt 3,550 4,639 3,511 1,628 2,214 23,749 39,291
Research and development expenses 207 383 392 514 50 407 1,953
Additions to property, plant and equipment and
intangible assets 1,859 964 854 402 1,823 111 6,013
Amortization of intangible assets and
depreciation of property, plant and equipment 959 949 621 238 1,515 119 4,401
Thereof impairments 24 86 67 10 500 3 690
BASF Report 2016 Consolidated Financial S
tatements 181
Notes — Notes on statement of income
Regions 2016 (million €)
South
America,
Thereof North Asia Africa, BASF
Europe Germany America Pacific Middle East Group
Location of customers
Sales 26,039 7,412 14,042 12,165 5,304 57,550
Share% 45.3 12.9 24.4 21.1 9.2 100.0
Location of companies
Sales 27,221 17,540 14,682 11,512 4,135 57,550
Sales including interregional transfers1 34,234 23,241 17,060 12,269 4,361 67,924
Income from operations 3,632 1,582 1,113 1,098 432 6,275
Assets 40,086 21,120 17,714 12,869 5,827 76,496
Thereof intangible assets 7,925 3,249 5,048 1,661 528 15,162
property, plant and equipment 13,990 6,915 6,055 4,421 1,947 26,413
investments accounted for using the equity method 3,052 1,120 119 1,476 – 4,647
Additions to property, plant and equipment and intangible assets 4,114 2,912 1,424 1,437 283 7,258
Amortization of intangible assets and depreciation of property, plant
and equipment 2,526 1,224 1,018 463 244 4,251
Regions 2015 (million €)
South
America,
Thereof North Asia Africa, BASF
Europe Germany America Pacific Middle East Group
Location of customers
Sales 36,897 13,483 15,390 12,334 5,828 70,449
Share% 52.4 19.1 21.8 17.5 8.3 100.0
Location of companies
Sales 38,675 28,229 15,665 11,712 4,397 70,449
Sales including interregional transfers1 46,056 34,297 18,311 12,384 4,623 81,374
Income from operations 4,174 2,303 1,295 445 334 6,248
Assets 38,993 20,307 15,968 11,002 4,873 70,836
Thereof intangible assets 6,845 2,467 4,406 839 447 12,537
property, plant and equipment 13,877 6,942 5,613 4,053 1,717 25,260
investments accounted for using the equity method 3,009 1,182 113 1,314 – 4,436
Additions to property, plant and equipment and intangible assets 3,162 1,446 1,263 986 602 6,013
Amortization of intangible assets and depreciation of property, plant
and equipment 2,889 1,081 911 422 179 4,401
1
The sum of sales including interregional transfers for all the regions can differ from the sum of sales including intersegmental transfers for all the segments, as the segments are viewed
globally, and therefore shipments and services between regions within the same segment are not classified as transfers.
In the United States, sales to third parties in 2016 amounted to intangible assets, property, plant and equipment, and invest-
€12,831 million (2015: €13,831 million) according to location ments accounted for using the equity method amounted to
of companies and €11,985 million (2015: €13,302 million) €10,342 million compared with €9,262 million in the previous
according to location of customers. In the United States,
year.
Notes on statement of income
5 Earnings per share
Earnings per share In accordance with IAS 33, a potential dilutive effect must be
considered in the diluted earnings per share for those BASF
2016 2015 shares which will be granted in the future as a part of the BASF
Net income million € 4,056 3,987 share program “plus.” This applies regardless of the fact that
Weighted-average number of the necessary shares are acquired by third parties on the
outstanding shares 1,000 918,479 918,479
market on behalf of BASF, and the fact that there are no plans
Earnings per share € 4.42 4.34
for the issuance of new shares. The dilutive effect of the issue
Diluted earnings per share € 4.41 4.33
of “plus” shares amounted to €0.01 in 2016 (2015: €0.01).
182 Consolidated Financial Statements BASF Report 2016
Notes — Notes on statement of income
6 Functional costs
Under the cost-of-sales method, functional costs incurred by Selling expenses
the operating functions are determined on the basis of cost
center accounting. The functional costs particularly contain Selling expenses particularly include marketing and advertising
the personnel costs, depreciation and amortization accumu- costs, freight costs, packaging costs, distribution manage-
lated on the underlying final cost centers as well as allocated ment costs, commissions, and licensing costs.
costs within the cost accounting cycle. Operating expenses
that cannot be allocated to the functional costs are reported General and administrative expenses
as other operating expenses.
For more on other operating expenses, see Note 8 from page 183 General and administrative expenses primarily include the
onward
costs of the central units, the costs of managing business
units and divisions, and costs of general management, the
Cost of sales Board of Executive Directors and the Supervisory Board.
Cost of sales includes all production and purchase costs of Research and development expenses
the company’s own products as well as merchandise which
has been sold in the period, particularly plant, energy and Research and development expenses include the costs result-
personnel costs. ing from research projects as well as the necessary license
fees for research activities.
For more on research and development expenses by segment, see
Note 4 on page 180
7 Other operating income
Million € 2016 2015
Income from the adjustment and reversal of provisions recognized in other operating expenses 80 118
Revenue from miscellaneous revenue-generating activities 191 179
Income from foreign currency and hedging transactions 32 305
Income from the translation of financial statements in foreign currencies 57 101
Gains on divestitures and the disposal of fixed assets 667 525
Income on the reversal of valuation allowances for business-related receivables 35 41
Other 718 735
Other operating income 1,780 2,004
Income from the adjustment and reversal of provisions Income from the translation of financial statements in
that had been recognized in other operating expenses was foreign currencies contained gains from the translation of
largely related to closures and restructuring measures, companies whose local currency is different from the f unctional
employee obligations, risks from lawsuits and damage claims, currency.
and various other items as part of the normal course of Gains on divestitures and the disposal of fixed assets
business. Provisions were reversed or adjusted if the circum- in the amount of €349 million resulted from the sale of the
stances on the balance sheet date were such that utilization industrial coatings business to AkzoNobel, Amsterdam,
was no longer expected, or expected to a lesser extent. Netherlands. Income of €93 million arose from the sale of the
For more information, see Note 8 from page 183 onward global polyolefin catalysts business to W.R. Grace & Co.,
Revenue from miscellaneous revenue-generating Columbia, Maryland. Further income of €83 million resulted
activities primarily included income from rentals, catering from the disposal of BASF’s OLED intellectual property assets
operations, cultural events and logistics services. to UDC Ireland Limited, Dublin, Ireland. Income of €72 million
Income from foreign currency and hedging trans pertained to real estate divestitures in several countries. The
actions pertained to the foreign currency translation of previous year had particularly contained income in the amount
receivables and payables as well as of currency derivatives of €314 million from the asset swap with Gazprom. In addition,
and other hedging transactions. The decline compared with the sale of the global textile chemicals business to Archroma
the previous year was attributable to the cessation of crude oil Textiles S.à r.l., Luxembourg, resulted in income of €71 million.
swaps to hedge price risks from gas purchase and sales Additional income of €39 million was attributable to the sale of
contracts due to the completion of the asset swap with
the white expandable polystyrene (EPS) business to Alpek
Gazprom. S.A.B. de C.V., Monterrey, Mexico. Furthermore, income in the
BASF Report 2016 Consolidated Financial S
tatements 183
Notes — Notes on statement of income
amount of €37 million arose from the sale of buildings in China Further income resulted from refunds and compensation
and India as well as income in the amount of €29 million from payments in the amount of €291 million in 2016 and €254 mil-
the sale of the custom synthesis business and parts of the lion in 2015. These were predominantly due in both years to
active pharmaceutical ingredients portfolio to Siegfried insurance refunds arising from a plant outage at the Ellba C.V.
Holding AG, Zofingen, Switzerland. joint operation in Moerdijk, Netherlands. The previous year had
Income from the reversal of valuation allowances for also included income from a one-off payment for a price
business-related receivables resulted mainly from the revision relating to 2014 in the Oil & Gas segment as well as a
settlement of customer-related receivables for which a valua- one-off payment from Tellus Petroleum AS, Oslo, Norway, in
tion allowance had been recorded. connection with the intended sale of selected assets on the
Income under Other included government grants and Norwegian continental shelf, which was not completed.
government assistance from several countries amounting to Moreover, income in both years was related to gains
€156 million in 2016 and €135 million in 2015. In both years, from precious metal trading, the reversal of impairments on
these were primarily attributable to price compensation from property, plant and equipment, tax refunds, income from the
the Argentinian government for gas producers, which was adjustment of pension plans, and a number of additional
introduced in connection with the New Gas Price Scheme items.
(NGPS) in response to the lower, partly locally regulated gas
prices.
8 Other operating expenses
Million € 2016 2015
Restructuring measures 482 306
Environmental protection and safety measures, costs of demolition and removal, and planning
expenses related to capital expenditures that are not subject to mandatory capitalization 464 457
Amortization, depreciation and impairments of intangible assets and property, plant and equipment 337 675
Costs from miscellaneous revenue-generating activities 179 179
Expenses from foreign-currency and hedging transactions as well as from the measurement of
LTI options 530 639
Losses from the translation of financial statements in foreign currencies 17 92
Losses from the disposal of fixed assets and divestitures 43 40
Oil and gas exploration expenses 94 195
Expenses from the addition of valuation allowances for business-related receivables 106 81
Expenses from the consumption of inventories measured at market value and the derecognition
of obsolete inventory 277 259
Other 604 717
Other operating expenses 3,133 3,640
Expenses for restructuring measures were primarily related Further expenses of €61 million in 2016 and €37 million in
to severance payments amounting to €190 million in 2016 2015 arose from the addition to environmental provisions. In
and €69 million in 2015. Further expenses for restructuring both years, these concerned several discontinued sites in
measures arose in the Petrochemicals division at several sites North America. In 2016, expenses were also incurred for
in the United States; these amounted to €37 million in 2016 landfills in Germany. Moreover, the previous year had
and €15 million in 2015. In the Dispersions & Pigments contained expenses for several discontinued sites in
division, expenses of €25 million in 2016 and €16 million Switzerland.
in 2015 concerned several sites worldwide. In addition, Amortization, depreciation and impairments of intan-
expenses of €39 million in 2016 and €15 million in 2015 were gible assets and property, plant and equipment arose from
incurred for the outsourcing of the computer centers as well as impairments in the Functional Materials & Solutions seg-
for a regional restructuring project in South America. ment in the amount of €124 million in 2016 compared
Expenses arose from environmental protection and with €57 million in 2015. The Chemicals segment posted
safety measures, demolition and removal, and planning impairments of €67 million in 2016 and €18 million in 2015.
expenses related to capital expenditures insofar as these Further impairments of €24 million concerned the Agricultural
are not subject to mandatory capitalization according to IFRS. Solutions segment in 2016. The previous year had recorded
Expenses for demolition, removal and project planning totaled €500 million in impairments in the Oil & Gas segment and
€375 million in 2016 and €376 million in 2015. These €53 million in the Performance Products segment.
especially pertained to the Ludwigshafen site in both years.
184 Consolidated Financial Statements BASF Report 2016
Notes — Notes on statement of income
Costs from miscellaneous revenue-generating activities Expenses from the addition of valuation allowances for
concerned the respective item presented in other operating business-related receivables rose by €25 million compared
income. with the previous year. This was predominantly due to higher
For more information, see Note 7 from page 182 onward additions in the region South America, Africa, Middle East as
Expenses from foreign-currency and hedging transac- compared with the prior year.
tions as well as from the measurement of LTI options were In both years, expenses under Other included expenses
related to foreign currency translations of receivables and from attorneys’ fees for litigation cases as well as from REACH,
payables as well as changes in the fair value of currency the provision of services, and conducting additional projects.
derivatives and other hedging transactions. Compared with Moreover, 2016 contained expenses of €27 million from the
the previous year, lower expenses were particularly the result fire damage at the Ludwigshafen North Harbor. In addition to
of the appreciation of the U.S. dollar against various curren- expenses for onerous contracts at several companies, 2015
cies. Countering this was an additional expense in 2016 for also contained expenses of €121 million for BASF’s 150th
the long-term incentive (LTI) program of €267 million (2015: anniversary.
€53 million).
Losses from the disposal of fixed assets and divesti-
tures amounted to €17 million in 2016 from the reduction in
disposal gains from the asset swap with Gazprom as part of
the final purchase price allocation. In 2015, losses mainly
stemmed from the sale of the global paper hydrous kaolin
business to Imerys Kaolin, Inc., Roswell, Georgia.
9 Income from companies accounted for using the equity method
Million € 2016 2015
Proportional net income 317 275
Thereof joint ventures 157 25
associated companies 160 250
Other adjustments of income and expense (10) (24)
Thereof joint ventures (4) (35)
associated companies (6) 11
Income from companies accounted for using the equity method 307 251
Income from companies accounted for using the equity In 2016, earnings from companies in the Oil and Gas segment
method increased in 2016 primarily due to higher earnings of which are accounted for using the equity method remained at
BASF-YPC Company Ltd., Nanjing, China. Countering this the prior year level. Nord Stream AG, Zug, S witzerland,
were lower earnings at Lucura Versicherungs AG, Lud- OAO Severneftegazprom, Krasnoselkup, Russia, as well as
wigshafen, Germany, which was largely attributable to building GASCADE Gastransport GmbH, Kassel, Germany, con
of provisions in connection with the fire at the North Harbor in tributed most to these earnings.
October 2016.
BASF Report 2016 Consolidated Financial S
tatements 185
Notes — Notes on statement of income
10 Financial result
Million € 2016 2015
Dividends and similar income 39 47
Income from the disposal of shareholdings 9 31
Income from profit transfer agreements 6 2
Income from tax allocation to participating interests – –
Income from other shareholdings 54 80
Losses from loss transfer agreements (18) (16)
Write-downs on/losses from the sale of shareholdings (53) (55)
Expenses from other shareholdings (71) (71)
Net income from shareholdings (17) 9
Interest income from cash and cash equivalents 159 184
Interest and dividend income from securities and loans 20 29
Interest income 179 213
Interest expenses (661) (638)
Interest result (482) (425)
Net interest income from overfunded pension plans and similar obligations 5 3
Income from the capitalization of borrowing costs 92 149
Miscellaneous financial income – –
Other financial income 97 152
Write-downs on/losses from the disposal of securities and loans (10) (18)
Net interest expense from underfunded pension plans and similar obligations (183) (196)
Net interest expense from other long-term personnel obligations (7) (3)
Unwinding the discount on other noncurrent liabilities (47) (68)
Miscellaneous financial expenses (231) (151)
Other financial expenses (478) (436)
Other financial result (381) (284)
Financial result (880) (700)
Net income from shareholdings was €26 million lower in underfunded pension plans and similar obligations
2016 than in the previous year. In 2015, higher income from decreased compared with the previous year, as a result of the
the dis posal of shareholdings was reported, particularly reduced net defined benefit liability as of December 31, 2015.
from the d isposal of the share in Indaver N.V., Antwerp, In comparison with 2015, income from the capitalization
Belgium. of borrowing costs declined due to the start up of larger
The interest result declined by €57 million compared with investment projects.
the previous year from minus €425 million to minus €482 mil- The rise in other financial expenses was largely
lion. This was due to lower interest income particularly from attributable to hedging of loans in U.S. dollars.
liquid funds and higher interest expenses arising from bank
loans outside of the eurozone.
Net interest expenses of the respective financial year is
based on the discount rate and the defined benefit obligation
at the beginning of the year. The net interest expense from
11 Income taxes
In Germany, a uniform corporate income tax rate of 15.0% as verage trade tax rate was 14.1% (2015: 14.1%). The 30%
a
well as a solidarity surcharge of 5.5% thereon is levied on all rate used to calculate deferred taxes for German Group com-
paid out and retained earnings. In addition to corporate panies remained unchanged in 2016. The profits of foreign
income tax, income generated in Germany is subject to a Group companies are assessed using the tax rates applicable
trade tax that varies depending on the municipality in which in their respective countries. These are also generally used to
the company is represented. Due to a constant rate of assess- calculate deferred taxes to the extent that tax rate adjustments
ment for Ludwigshafen, Germany, in 2016, the weighted for the future have not yet been enacted.
186 Consolidated Financial Statements BASF Report 2016
Notes — Notes on statement of income
Tax expense
Million € 2016 2015
Current tax expense 1,654 1,610
Corporate income tax, solidarity surcharge and trade taxes (Germany) 589 514
Foreign income tax 1,184 1,231
Taxes for prior years (119) (135)
Deferred tax expense (+) / income (–) (514) (363)
From changes in temporary differences (473) (314)
From changes in tax loss carryforwards / unused tax credits (43) (59)
From changes in the tax rate (6) 7
From valuation allowances on deferred tax assets 8 3
Income taxes 1,140 1,247
Other taxes as well as sales and consumption taxes 272 302
Tax expense 1,412 1,549
Changes in valuation allowances on deferred tax assets for tax Other taxes included real estate taxes and other comparable
loss carryforwards resulted in expenses of €7 million in 2016 taxes totaling €109 million in 2016 and €106 million in 2015.
and expenses of €4 million in 2015.
Reconciliation of the effective tax rate and the tax rate in Germany
2016 2015
Million € % Million € %
Income before taxes and minority interests 5,395 – 5,548 –
Expected tax based on German corporate income tax (15%) 810 15.0 832 15.0
Solidarity surcharge 13 0.2 11 0.2
German trade tax 236 4.4 234 4.2
Foreign tax-rate differential 402 7.5 225 4.1
Tax-exempt income (46) (0.9) (103) (1.9)
Nondeductible expenses 76 1.4 239 4.3
Income after taxes of companies accounted for using the equity method (46) (0.9) (38) (0.7)
Taxes for prior years (119) (2.2) (135) (2.4)
Deferred tax liabilities for the future reversal of temporary differences
associated with shares in participating interests (2) 0.0 (28) (0.5)
Other (184) (3.4) 10 0.2
Income taxes / effective tax rate 1,140 21.1 1,247 22.5
The BASF Group tax rate amounted to 21.1% in 2016 (2015: included an impairment of the goodwill of the Exploration &
22.5%). The lower tax rate was mainly due to deferred tax Production business sector. In Other, currency driven
income arising from the valuation of the differences to the tax valuation of the differences to the tax values as well as
values as a result of foreign currency translation. Taxes for additional tax depreciation on oil and gas production facilities
prior years primarily contained reversals of long-term tax in Norway led to tax income.
provisions. Future reversals of temporary differences for shares in
The foreign tax-rate differential increased due to improve- investments that are assumed to have a planning horizon of
ment in earnings in the Exploration & Production business one year led to deferred tax income of €2 million in 2016
sector in countries with a high tax rate, particularly in Norway. (2015: €28 million).
In the previous year, nondeductible expenses particu larly
BASF Report 2016 Consolidated Financial S
tatements 187
Notes — Notes on statement of income
Deferred taxes
Deferred tax assets and liabilities (million €)
Deferred tax assets Deferred tax liabilities
2016 2015 2016 2015
Intangible assets 90 90 1,719 1,553
Property, plant and equipment 180 182 3,336 3,322
Financial assets 51 12 84 106
Inventories and accounts receivable 348 251 498 517
Provisions for pensions 3,028 2,410 431 472
Other provisions and liabilities 1,446 1,346 170 177
Tax loss carryforwards 309 271 – –
Other 157 164 95 107
Netting (3,016) (2,873) (3,016) (2,873)
Valuation allowances for deferred tax assets (80) (62) – –
Thereof for tax loss carryforwards (30) (25) – –
Total 2,513 1,791 3,317 3,381
Thereof current 595 439 179 256
Deferred taxes result from temporary differences between tax Tax loss carryforwards exist in all regions, especially in Europe
balances and the measurement of assets and liabilities and Asia. German tax losses may be carried forward
according to IFRS as well as from tax loss carryforwards and indefinitely. In foreign countries, tax loss carryforwards are in
unused tax credits. The remeasurement of all the assets and some cases only possible for a limited period of time. The bulk
liabilities associated with acquisitions according to IFRS 3 has of the tax loss carryforwards will expire in Europe by 2019 and
resulted in significant deviations between fair values and the in Asia by 2021. No deferred tax assets were recognized for
values in the tax accounts. This leads primarily to deferred tax tax loss carryforwards of €1,478 million in 2016 (2015:
liabilities. €1,767 million).
Undistributed earnings of subsidiaries resulted in tempo-
rary differences of €8,905 million in 2016 (2015: €9,241 million) Tax obligations
for which deferred tax liabilities were not recognized, as they
are either not subject to taxation on payout or they are Tax obligations primarily include assessed income taxes and
expected to be reinvested for indefinite periods of time. other taxes as well as estimated income taxes not yet
assessed for the current year. Tax obligations amounted to
Tax loss carryforwards €1,288 million in 2016 (2015: €1,082 million).
The regional distribution of tax loss carryforwards is as follows:
Tax loss carryforwards (million €)
Tax loss Deferred
carryforwards tax assets
2016 2015 2016 2015
Germany 1 1 – –
Foreign 2,383 2,490 279 246
Total 2,384 2,491 279 246
188 Consolidated Financial Statements BASF Report 2016
Notes — Notes on statement of income
12 Minority interests
Million € 2016 2015 Higher minority interests in profits compared with the
Minority interests in profits 229 343 previous year were predominantly attributable to W & G Trans-
Minority interests in losses (30) (29) port Holding GmbH, Kassel, Germany, and Shanghai BASF
Total 199 314 Polyurethane Company Ltd., Shanghai, China.
For more information on minority interests in consolidated companies,
see Note 21 on page 197
In 2016, lower minority interests in profits in comparison
with the previous year were mainly the result of the disposal of
shares in companies active in the gas storage business in
connection with the asset swap completed with Gazprom on
September 30, 2015. Also responsible were decreased
margins and lower sales volumes from the reduced capacity
utilization of BASF TOTAL Petrochemicals LLC’s condensate
splitter in Port Arthur, Texas.
13 Personnel expenses and employees
Personnel expenses Number of employees as of December 31
The BASF Group spent €10,165 million for wages and 2016 2015
salaries, social security contributions and expenses for
Europe 70,784 70,079
pensions and assistance in 2016 (2015: €9,982 million). This Thereof Germany 53,318 52,837
represented an increase in personnel expenses of 1.8%. This North America 17,583 17,471
was particularly due to higher expenses for the long-term Asia Pacific 18,156 17,562
incentive (LTI) program in addition to wage and salary South America, Africa, Middle East 7,307 7,323
increases. Countering this was the lower average number of BASF Group 113,830 112,435
employees (2016: 111,975 employees; 2015: 113,249 employ Thereof apprentices and trainees 3,120 3,240
ees) as well as currency effects. temporary staff 2,334 2,294
Personnel expenses (million €) Employees from joint operations are included in the number of
employees at year end relative to BASF’s share in the respec-
2016 2015 tive company. In total, this included 432 employees in 2016
Wages and salaries 8,170 7,943 (2015: 392 employees).
Social security contributions and The average number of employees was distributed over
expenses for pensions and assistance 1,995 2,039
the regions as follows:
Thereof for pension benefits 627 658
Personnel expenses 10,165 9,982
Average number of employees
Number of employees 2016 2015
Europe 69,873 70,922
As of December 31, 2016, the number of employees increased Thereof Germany 52,608 52,987
to 113,830 employees due to the acquisition of Chemetall North America 17,308 17,342
compared with 112,435 employees as of December 31, 2015. Asia Pacific 17,473 17,428
It was distributed over the regions as follows: South America, Africa, Middle East 7,321 7,557
BASF Group 111,975 113,249
Thereof apprentices and trainees 2,838 2,942
temporary staff 2,365 2,574
Employees from joint operations are included in the average
number of employees relative to BASF’s share in the com
pany. This comprised a total of 404 employees (2015: 398
employees).
BASF Report 2016 Consolidated Financial S
tatements 189
Notes — Notes on balance sheet
Notes on balance sheet
14 Intangible assets
The goodwill of BASF is allocated to 22 cash-generating units In determining the recoverable amount for the great majority of
(2015: 21), which are defined either on the basis of business cash-generating units, BASF generally anticipates that a
units or on a higher level. reasonably possible deviation from the key assumptions will
Annual impairment testing took place in the fourth quarter not lead to the carrying amount of the units exceeding their
of the year on the basis of the cash-generating units. Recover- respective recoverable amounts. For the goodwill of the
able amounts were determined in most cases using the value Construction Chemicals division and the cash-generating
in use. This was done using plans approved by company units Pigments (in the Dispersions & Pigments division), as well
management and their respective cash flows, generally for the as Catalysts (excluding battery materials), this is not the case.
next five years. Thereafter, a terminal value was calculated In the 2016 business year, the recoverable amount of the
using a forward projection from the last detailed planning year Construction Chemicals unit exceeded the carrying amount by
as a perpetual annuity. The planning is based on experience, around €282 million. The weighted average cost of capital rate
current performance and management’s best possible after taxes used for impairment testing was 8.01% (2015:
estimates on the future development of individual parameters, 7.67%). The recoverable amount would equal the unit’s
such as raw material prices and profit margins. The oil price is carrying amount if the weighted average cost of capital rate
also among the main input parameters that provide the basis increased by 0.69 percentage points (2015: by 0.96 percent-
for the forecast of cash flows in the current financial plans. age points) or if income from operations of the last detailed
Market assumptions regarding, for example, economic devel- planning year – as the basis for the terminal value – were lower
opment and market growth are included based on external by 12.0% (2015: by 16.65%).
macroeconomic sources as well as sources specific to the In 2016, the recoverable amount of Pigments exceeded
industry. the carrying amount by €242 million. The weighted average
The weighted average cost of capital rate after tax required cost of capital rate after taxes used for impairment testing was
for impairment testing is determined using the Capital Asset 5.09% (2015: 6.07%). The recoverable amount would equal
Pricing Model. It comprises a risk-free rate, a market risk the unit’s carrying amount if the weighted average cost of
premium, and a spread for credit risk based on the respective capital rate increased by 0.51 percentage points (2015: by
industry-specific peer group. The calculation also takes into 0.04 percentage points) or if income from operations of the last
account capital structure and the beta factor of the respective detailed planning year – as the basis for the terminal value –
peer group as well as the average tax rate of each cash- were lower by 13.78% (2015: by 0.92%).
generating unit. Impairment tests of the units (excluding In 2016, the recoverable amount of Catalysts (excluding
Exploration & Production in the Oil & Gas segment) were
battery materials) exceeded the carrying amount by €705 mil-
conducted assuming a weighted average cost of capital rate lion. The weighted average cost of capital rate after taxes used
after taxes between 5.07% and 8.01% (2015: between 6.04% for the impairment testing of this unit was 8.01% (2015:
and 7.67%). This represents a weighted average cost of 7.66%). The recoverable amount would equal the unit’s
capital rate before taxes between 6.43% and 10.77% (2015: carrying amount if the weighted average cost of capital rate
between 7.77% and 10.81%). In the financial year 2016, a increased by 0.82 percentage points (2015: by 0.73 percent-
refined valuation model based on a field-related valuation age points) or if income from operations of the last detailed
approach was introduced, which considers the expected cash planning year – as the basis for the terminal value – were lower
flows as well as the tax payments in the individual countries. by 13.75% (2015: by 14.52%).
The period under consideration now includes the planned For impairment testing in the Exploration & Production
license terms and the production profiles of the included
business sector in the Oil & Gas segment, BASF assumes an
oil and gas fields. Furthermore, instead of using a single average oil price of $55 per barrel of Brent crude oil in 2017. In
weighted average cost of capital rate, the country risk and comparison with the previous year, the long-term outlook for
the specific tax rate is considered in each case: this leads to oil prices remained unchanged. The recoverable amount of
a more precise calculation of the recoverable amount. Con the cash-generating unit Exploration & Production improved
sidering these parameters, the capital rate after taxes varied significantly compared against the impairment test of the pre-
between 7.5% and 13.76% and before taxes between 10.96% vious year. This was mainly due to the expenditure and pro-
and 37.68%. duction profiles that were adapted to the price development.
190 Consolidated Financial Statements BASF Report 2016
Notes — Notes on balance sheet
Goodwill of cash-generating units (million €)
2016 2015
Cash-generating unit Goodwill Growth rate1 Goodwill Growth rate1
Crop Protection division 2,093 2.0% 2,048 2.0%
Exploration & Production in the Oil & Gas segment 1,712 –2 1,660 (2.0%)
Catalysts division (excluding battery materials) 1,390 2.0% 1,411 2.0%
Construction Chemicals division 735 1.5% 700 1.5%
Personal care ingredients in the Care Chemicals division 531 2.0% 537 2.0%
Pigments in the Dispersions & Pigments division 431 2.0% 484 2.0%
Surface Treatment in the Coatings division 1,555 –3 – –
Other cash-generating units 1,626 0.0–2.0% 1,523 0.0–2.0%
Goodwill as of December 31 10,073 8,363
1
Growth rates used in impairment tests to determine terminal values in accordance with IAS 36
2
For impairment testing of the cash-generating unit Exploration & Production, a field-related valuation method considering the expected term and production profile of the included oil
and gas fields as well as the tax payments in the specific countries is used instead of a general growth rate, as of the 2016 financial year.
3
No impairment testing for the acquisition in December 2016
Development of intangible assets 2016 (million €)
Know-how, Internally
Distribution, Product rights, patents and generated
supply and licenses and production intangible Other rights
similar rights trademarks technologies assets and values4 Goodwill Total
Cost
Balance as of
January 1, 2016 4,063 1,318 1,951 91 450 8,500 16,373
Changes in scope of
consolidation – – – – – 2 2
Additions – 18 39 10 25 – 92
Additions from acquisitions 1,082 44 108 – 3 1,552 2,789
Disposals (343) (39) (149) (9) (60) (64) (664)
Transfers (2) (16) (12) – 13 – (17)
Currency effects 251 14 21 – 4 224 514
Balance as of
December 31, 2016 5,051 1,339 1,958 92 435 10,214 19,089
Accumulated
amortization
Balance as of
January 1, 2016 2,160 411 865 67 196 137 3,836
Changes in scope of
consolidation
Additions 260 47 153 14 86 – 560
Disposals (339) (24) (146) (9) (55) – (573)
Transfers (1) – – – – – (1)
Currency effects 88 1 10 – 2 4 105
Balance as of
December 31, 2016 2,168 435 882 72 229 141 3,927
Net carrying amount as
of December 31, 2016 2,883 904 1,076 20 206 10,073 15,162
4
Including licenses to such rights and values
Besides goodwill, intangible assets also include acquired Additions from acquisitions amounted to €2,789 million in
intangible assets as well as internally generated intangible
2016. Significant acquisitions comprising the purchase of the
assets. In addition, they include rights belonging to the Oil & global surface treatment provider Chemetall from Albemarle
Gas segment, which are amortized in accordance with the unit Corp., Charlotte, North Carolina, and the automotive refinishing
of production method. As of December 31, 2016, their acqui- business from Guangdong Yinfan Chemistry, Jiangmen, China,
sition costs amounted to €1,029 million and accumulated led to an increase of goodwill in the amount of €1,552 million.
amortization to €328 million; amortization in 2016 amounted to In connection with these transactions, additions to intangible
€19 million. assets amounted to €1,237 million. These were primarily
related to customer relationships and production technologies.
BASF Report 2016 Consolidated Financial S
tatements 191
Notes — Notes on balance sheet
Disposals of intangible assets in the amount of €21 million production of oil and gas in certain areas. At the end of the
were largely attributable to the sale of the 25% share in the term of a concession, the rights are returned.
Byrding field to Statoil and the divestiture of the global In 2016, additions to accumulated amortization included
photoinitiator business as well as the global polyolefin catalysts impairments of €61 million. This primarily affected impairments
business. Related to this, goodwill of €64 million was derecog- relating to production technologies and marketing and selling
nized. rights in the Functional Materials & Solutions segment in the
Concessions for oil and gas production under the category amount of €51 million.
product rights, licenses and trademarks with a net carrying
amount of €466 million in 2016 authorize the exploration and
Development of intangible assets 2015 (million €)
Know-how, Internally
Distribution, Product rights, patents and generated
supply and licenses and production intangible Other rights
similar rights trademarks technologies assets and values1 Goodwill Total
Cost
Balance as of
January 1, 2015 4,014 1,410 2,000 86 674 8,141 16,325
Changes in scope of
consolidation 5 – (53) – (1) – (49)
Additions – 56 23 11 45 – 135
Additions from acquisitions 47 – 38 – 32 19 136
Disposals (94) (43) (137) (7) (147) (149) (577)
Transfers (2) (167) 34 1 (170) (24) (328)
Currency effects 93 62 46 – 17 513 731
Balance as of
December 31, 2015 4,063 1,318 1,951 91 450 8,500 16,373
Accumulated
amortization
Balance as of
January 1, 2015 1,879 379 809 59 232 – 3,358
Changes in scope of
consolidation 3 – (38) – (1) – (36)
Additions 302 71 193 14 84 137 801
Disposals (92) (43) (125) (6) (123) – (389)
Transfers – (1) 8 – (7) – –
Currency effects 68 5 18 – 11 – 102
Balance as of
December 31, 2015 2,160 411 865 67 196 137 3,836
Net carrying amount as
of December 31, 2015 1,903 907 1,086 24 254 8,363 12,537
1
Including licenses to such rights and values
Besides goodwill, intangible assets also include acquired of high-molecular-weight polyisobutene (HM PIB), which
intangible assets as well as internally generated intangible
added €23 million to intangible assets.
assets. In addition, they include rights belonging to the Oil & Concessions for oil and gas production under the category
Gas segment, which are amortized in accordance with the unit product rights, licenses and trademarks with a net carrying
of production method. As of December 31, 2015, their amount of €480 million in 2015 authorize the exploration and
acquisition costs amounted to €835 million and accumulated production of oil and gas in certain areas. At the end of the
amortization to €246 million; amortization in 2015 amounted term of a concession, the rights are returned. Aside from
to €41 million. transfers to property, plant and equipment, transfers in 2015
Additions from acquisitions amounted to €136 million in included €54 million from the subsequent adjustments of the
2015. Significant acquisitions concerned the purchase of a purchase price allocation for the acquisition of assets from
66% share in a company to which TODA KOGYO CORP., Statoil.
Hiroshima, Japan, contributed its business, and the purchase Other rights and values under transfers also included
of the polyurethane (PU) business from Polioles, S.A. de C.V., derecognitions of €153 million resulting from the change in
Lerma, Mexico. In connection with these transactions, addi- accounting to the net method for emission right certificates
tions to intangible assets amounted to €87 million. Moreover, granted free of charge in 2015. Disposals of €17 million were
BASF concluded an agreement with Lanxess on the acqui attributable to the asset swap with Gazprom.
sition and use of technologies and patents for the production
192 Consolidated Financial Statements BASF Report 2016
Notes — Notes on balance sheet
Related to this, goodwill of €173 million was derecognized, more, under the category know-how, patents and production
€32 million of which was reported under transfers. technologies, a once-advantageous supply contract of
In 2015, additions to accumulated amortization included €36 million in the Functional Materials & Solutions segment
impairments of €205 million. These primarily concerned the was fully impaired due to lower market prices.
Oil & Gas segment. The revised assumptions for oil and gas In 2015, additions to accumulated amortization included
prices led to €137 million in goodwill impairments as well as write-ups of €2 million.
€27 million in impairments on a license in Norway. Further-
15 Property, plant and equipment
Machinery and technical equipment contain oil and gas further infrastructure, which are depreciated according to the
deposits, including related wells, production facilities and unit of production method.
Development of property, plant and equipment 2016 (million €)
Thereof depre-
ciation accord-
Land, land Machinery and ing to the unit Miscellaneous
rights and technical of production equipment and Construction in
buildings equipment method fixtures progress Total
Cost
Balance as of January 1, 2016 10,711 45,805 5,972 4,216 6,502 67,234
Changes in scope of consolidation (1) – – 2 – 1
Additions 183 1,300 309 203 2,536 4,222
Additions from acquisitions 77 54 – 18 6 155
Disposals (194) (760) (30) (213) (88) (1,255)
Transfers 322 2,796 716 165 (3,145) 138
Currency effects 159 698 213 46 178 1,081
Balance as of December 31, 2016 11,257 49,893 7,180 4,437 5,989 71,576
Accumulated depreciation
Balance as of January 1, 2016 5,637 32,965 2,827 3,152 220 41,974
Changes in scope of consolidation (1) – – – – (1)
Additions 376 2,930 939 307 78 3,691
Disposals (100) (658) (28) (182) (73) (1,013)
Transfers (1) 1 – 1 – 1
Currency effects 58 417 (27) 30 6 511
Balance as of December 31, 2016 5,969 35,655 3,711 3,308 231 45,163
Net carrying amount as of
December 31, 2016 5,288 14,238 3,469 1,129 5,758 26,413
Additions to property, plant and equipment arising from Due to acquisitions, property, plant and equipment rose by
investment projects amounted to €4,222 million in 2016.
€155 million primarily from the acquisition of the global surface
Material investments were primarily related to the construction treatment provider Chemetall from Albemarle Corp., Charlotte,
of an integrated aroma ingredients complex in Kuantan, North Carolina.
Malaysia, the TDI complex in Ludwigshafen, Germany, and the In 2016, impairments of €254 million were included in
expansion of the dicamba plant in Beaumont, Texas, which accumulated depreciation. These pertained largely to
were partially started up in 2016. Further material asset addi- impairments of €133 million on machinery and technical
tions included the construction of an a mmonia plant in Free- equipment as well as buildings due to the new strategic
port, Texas, and oil and gas production facilities and wells in direction of
individual businesses in the Chemicals and
Europe and South America. Functional Materials & Solutions segments. The recoverable
In addition, investments for expansion purposes were amount of these assets equals their value in use amounting to
particularly made at the sites in Ludwigshafen, Germany; €72 million. The weighted a verage cost of capital rate before
Geismar, Louisiana; Port Arthur, Texas; and Antwerp, Belgium. taxes applied ranged between 9.4% and 12.8%.
Government grants of €1 million were deducted from asset
additions.
BASF Report 2016 Consolidated Financial S
tatements 193
Notes — Notes on balance sheet
In 2016, additions to accumulated depreciation contained in the Byrding field to Statoil; and the sale of industrial coatings
write-ups of €2 million. business to the AkzoNobel Group.
Disposals of property, plant and equipment were largely Currency effects arose particularly from the appreciation
attributable to the sale of assets of the global polyolefin of the U.S. dollar as well as the Brazilian real relative to the
catalysts business to W. R. Grace & Co., Columbia, Maryland; euro.
the sale of the worldwide photoinitiator business to IGM Res-
ins B.V., Waalwijk, the Netherlands; the sale of the 25% share
Development of property, plant and equipment 2015 (million €)
Thereof depre-
ciation accord-
Land, land Machinery and ing to the unit Miscellaneous
rights and technical of production equipment and Construction in
buildings equipment method fixtures progress Total
Cost
Balance as of January 1, 2015 9,635 43,410 5,729 3,688 7,681 64,414
Changes in scope of consolidation (32) (12) – – 4 (40)
Additions 396 1,474 492 226 3,555 5,651
Additions from acquisitions 25 46 – 1 19 91
Disposals (263) (2,974) (977) (184) (606) (4,027)
Transfers 734 2,529 483 391 (4,518) (864)
Currency effects 216 1,332 245 94 367 2,009
Balance as of December 31, 2015 10,711 45,805 5,972 4,216 6,502 67,234
Accumulated depreciation
Balance as of January 1, 2015 5,391 32,463 3,203 2,774 290 40,918
Changes in scope of consolidation (36) (19) – – – (55)
Additions 329 2,707 959 303 261 3,600
Disposals (156) (2,250) (866) (165) (348) (2,919)
Transfers 7 (935) (595) 176 19 (733)
Currency effects 102 999 126 64 (2) 1,163
Balance as of December 31, 2015 5,637 32,965 2,827 3,152 220 41,974
Net carrying amount as of
December 31, 2015 5,074 12,840 3,145 1,064 6,282 25,260
Additions to property, plant and equipment arising from efore taxes used ranged between 9.13% and 88.83%. The
b
investment projects amounted to €5,651 million in 2015.
high cost of capital rates were due to the special income tax
Significant investments were primarily related to the construc- for the oil and gas industry in Norway. The recoverable amount
tion of a TDI complex in Ludwigshafen, Germany; a production for impaired property, plant and equipment equals their value
complex for acrylic acid and superabsorbents in Camaçari, in use. In 2015, additions to accumulated depreciation
Brazil; and an MDI plant in Chongqing, China. Each of these contained write-ups of €5 million.
started up either fully or partly in 2015. Further significant Disposals of property, plant and equipment were primarily
investments included the construction of an integrated aroma attributable to the asset swap with Gazprom and related
ingredients complex in Kuantan, Malaysia, and oil and gas primarily to the transferred natural gas trading and storage
production facilities and wells in Europe and South America. business. Furthermore, BASF’s share in Wintershall Noord
Investments for expansion purposes were particularly made zee B.V., Rijswijk, Netherlands, was reduced to 50%. With this
at the sites in Ludwigshafen, Germany; Freeport, Texas; Geis- loss of control, the company was reclassified as an investment
mar, Louisiana; and Antwerp, Belgium. Government grants of accounted for using the equity method. 50% of the property,
€10 million related to tangible assets were deducted. Due to plant and equipment was reported in disposals and the
acquisitions, property, plant and equipment rose by €91 mil- remaining 50% in transfers.
lion primarily from the acquisition of BASF TODA Battery Currency effects arose particularly from the a ppreciation
Materials LLC, Tokyo, Japan. of the U.S. dollar relative to the euro.
In 2015, impairments of €485 million were included in
accumulated depreciation. Of this amount, €336 million
pertained to impairments on oil and gas fields in Norway, Libya
and Germany in the Oil & Gas segment. These impairments
arose particularly from the ongoing low oil and gas price levels
and the resulting revision of planning assumptions. These
fields were written down to their recoverable amount, totaling
€1,338 million. The weighted average cost of capital rate
194 Consolidated Financial Statements BASF Report 2016
Notes — Notes on balance sheet
16 Investments accounted for using the equity method and other financial assets
Investments accounted for using the equity method (million €)
2016 2015
Balance as of January 1 4,436 3,245
Changes in scope of consolidation – –
Additions 152 847
Disposals (1) (107)
Transfers (27) 398
Currency effects 87 53
Net carrying amount as of December 31 4,647 4,436
Other financial assets (million €)
December 31, 2016 December 31, 2015
Other shareholdings 468 420
Long-term securities 137 106
Other financial assets 605 526
Additions of €152 million to investments accounted for using together by BASF and Gazprom since the sale of BASF’s 50%
the equity method were primarily attributable to the joint share to Gazprom in September 2015. Wintershall Noordzee
venture Synvina C.V., Amsterdam, the Netherlands, estab-
B.V. is accounted for as a joint venture using the equity method
lished with Avantium in 2016. Furthermore, additions included in the Consolidated Financial S tatements since then. In 2016,
Chongqing Chemetall Surface Treatment Co., Ltd, Chongqing, the final purchase price allocation resulted in an adjustment of
China; and the Changchun Chemetall Chemicals Co. Ltd., the fair value of Wintershall Noordzee B.V. in the amount of
Changchun, China. Both companies were acquired in con minus €15 million, which is included in transfers.
nection with the acquisition of Chemetall on Decem- For a detailed overview of income from companies accounted for using
the equity method, see Note 9 on page 184
ber 14, 2016. The capital increase at Markor Meiou Chemical
(Xinjiang) Co., Ltd., Korla, China, had an effect of €8 million on
additions. The change in other shareholdings resulted from additions of
Disposals totaling €107 million in the previous year were €107 million, primarily attributable to Gullfaks AS, Stavanger,
primarily attributable to the sale of the 25% share in SolVin to Norway, and disposals of €12 million. Impairments amounted
our partner Solvay, effective July 1, 2015. to €41 million. Other shareholdings decreased by €12 million
Transfers include dividend distributions and other com- as a result of reclassifications and transfers. Currency effects
prehensive income of the companies as well as the net income resulted in an increase of €6 million in other shareholdings.
of investments accounted for using the equity method. The
previous year’s figure was made up primarily of the first-time
use of the equity method to account for Wintershall Noord-
zee B.V., Rijswijk, the Netherlands. The company is operated
17 Inventories
Million € December 31, 2016 December 31, 2015
Raw materials and factory supplies 3,107 2,944
Work-in-process, finished goods and merchandise 6,808 6,680
Advance payments and services-in-process 90 69
Inventories 10,005 9,693
Work-in-process, finished goods and merchandise are Cost of sales included inventories recognized as an expense
combined into one item due to the production conditions in amounting to €26,048 million in 2016, and €38,199 million in
the chemical industry. Services-in-process primarily relate to 2015.
services not invoiced as of the balance sheet date.
BASF Report 2016 Consolidated Financial S
tatements 195
Notes — Notes on balance sheet
A write-down of inventory was recognized in the amount of Of total inventories, €836 million was measured at net
€43 million in 2016 and a write-up in the amount of €22 million realizable value in 2016 and €770 million in 2015.
in 2015. Changes in valuation allowances on inventory were
largely due to lower net realizable value.
18 Receivables and miscellaneous assets
Other receivables and miscellaneous assets (million €)
December 31, 2016 December 31, 2015
Noncurrent Current Noncurrent Current
Loans and interest receivables 568 250 811 194
Derivatives with positive fair values 176 342 384 474
Receivables from finance leases 29 5 33 8
Insurance compensation receivables 6 14 – 16
Miscellaneous 126 406 130 357
Other receivables and assets which qualify as financial instruments 905 1,017 1,358 1,049
Prepaid expenses 62 258 61 176
Defined benefit assets 66 – 133 –
Tax refund claims 114 747 102 875
Employee receivables – 10 – 21
Precious metal trading items – 690 – 663
Miscellaneous 63 356 66 311
Other receivables and assets which do not qualify as financial
instruments 305 2,061 362 2,046
Other receivables and miscellaneous assets 1,210 3,078 1,720 3,095
The decline in noncurrent loans and interest receivables in able to the lower fair values of precious metal and foreign
2016 was predominantly due to the reduction of loans granted currency derivatives.
by WIGA Transport Beteiligungs-GmbH & Co. KG, Kassel, Prepaid expenses in 2016 included prepayments of
Germany, to NEL Gastransport GmbH, Kassel, Germany, and €64 million related to operating activities compared with
GASCADE Gastransport GmbH, Kassel, Germany, by €41 million in 2015, as well as €54 million in prepayments for
€139 million to €259 million to finance the pipeline network. insurance in 2016 compared with €30 million in 2015. Prepay-
Furthermore, loans granted by BASF Belgium Coordination ments for license costs increased from €36 million to €48 mil-
Center Comm. V., Antwerp, Belgium, mainly to finance the lion in 2016.
business expansion of Asian companies, were reduced by The reduction in current tax refund claims can largely be
€72 million to €144 million in 2016. As in the previous year, this traced back to the settlement of open tax income r eceivables.
item also included receivables in favor of BASF SE from the Precious metal trading items primarily comprise physical
BASF Pensionskasse arising from an agreement regarding the items and precious metal accounts as well as long positions in
granting of profit participation capital in the amount of precious metals, which are largely hedged through sales or
€80 million. derivatives.
The reduction of noncurrent derivatives positive fair
market values primarily affected the market valuation of com-
bined interest rate and currency swaps. The change in current
derivatives with positive fair market values was largely attribut-
Valuation allowances for receivables 2016 (million €)
Balance as Additions Reversals Additions not Reversals not Balance as of
of January 1, recognized in recognized in recognized in recognized in December 31,
2016 income income income income 2016
Accounts receivable, trade 298 106 35 40 39 370
Other receivables 75 27 1 24 7 118
Total 373 133 36 64 46 488
196 Consolidated Financial Statements BASF Report 2016
Notes — Notes on balance sheet
Valuation allowances for receivables 2015 (million €)
Balance as Additions Reversals Additions not Reversals not Balance as of
of January 1, recognized in recognized in recognized in recognized in December 31,
2015 income income income income 2015
Accounts receivable, trade 337 80 41 33 111 298
Other receivables 108 18 – 19 70 75
Total 445 98 41 52 181 373
Changes recognized in income contained individual valuation At BASF, a comprehensive, global credit insurance program
allowances, group-wise individual valuation allowances and covers trade accounts receivable incurred since Janu-
valuation allowances due to transfer risks. ary 1, 2015. As part of a global excess of loss policy, an
Changes not recognized in income were primarily related essential part of future bad debts of the BASF Group are
to changes in the scope of consolidation, translation adjust- insured. No compensation claims were incurred in either 2016
ments and derecognition of uncollectible receivables. or 2015.
Even in the current economic environment, BASF has not In 2016, individual valuation allowances of €27 million were
observed any material changes in the credit quality of its recognized for other receivables and €1 million reversed. In
receivables. In 2016, individual valuation allowances of
2015, individual valuation allowances of €18 million were rec-
€71 million were recognized for accounts receivable, trade, ognized for other receivables.
and valuation allowances of €22 million were reversed. In
2015, individual valuation allowances of €57 million were
recognized for trade accounts receivable and valuation
allowances of €17 million were reversed.
Aging analysis of accounts receivable, trade (million €)
December 31, 2016 December 31, 2015
Gross value Valuation allowances Gross value Valuation allowances
Not yet due 10,295 26 8,822 22
Past due less than 30 days 381 2 435 3
Past due between 30 and 89 days 159 8 135 8
Past due more than 90 days 487 334 422 265
Total 11,322 370 9,814 298
As of December 31, 2016, there were no material other receivables classified as financial instruments that were overdue and for
which no valuation allowance was made.
19 Capital, reserves and retained earnings
Authorized capital Reserves and retained earnings
At the Annual Shareholders’ Meeting on May 2, 2014, share- Capital surplus includes effects from BASF’s share program,
holders authorized the Board of Executive Directors, with the premiums from capital increases and consideration for
approval of the Supervisory Board, to increase the subscribed warrants and negative goodwill from the capital consolidation
capital by issuing new registered shares up to a total of resulting from acquisitions of subsidiaries in exchange for the
€500 million against cash or contributions in kind through issue of BASF SE shares at par value.
May 1, 2019. The Board of Executive Directors is empowered,
following the approval of the Supervisory Board, to decide on
the exclusion of shareholders’ subscription rights for these Dec. 31, Dec. 31,
Million € 2016 2015
new shares in certain predefined cases covered by the
Legal reserves 625 594
enabling resolution. Until now, this option has not been
Other retained earnings 30,890 29,526
exercised and no new shares have been issued.
Retained earnings 31,515 30,120
BASF SE has only issued fully paid-up registered shares
with no par value. There are no preferences or other restric-
tions. BASF SE does not hold any treasury shares.
BASF Report 2016 Consolidated Financial S
tatements 197
Notes — Notes on balance sheet
Transfers from other retained earnings increased legal lead to a change in the consolidation method. There were no
reserves by €31 million in 2016 (2015: €60 million). transactions of this type in 2016, as in the previous year.
Due to the disposal of the 25% share in SolVin to our
partner, Solvay, of parts of the pharmaceutical ingredient
Payment of dividends
business to Siegfried Holding AG, Zofingen, Switzerland, and
the asset swap with Gazprom, an amount of €68 million In accordance with the resolution of the Annual Shareholders’
resulting from the remeasurement of defined benefit plans Meeting on April 29, 2016, BASF SE paid a dividend of €2.90
was transferred from other comprehensive income into per share from the retained profit of the 2015 fiscal year. With
retained earnings in 2015. There were no transfers in 2016. 918,478,694 shares entitled to dividends, this amounts to a
The acquisition of shares in companies which BASF total dividend payout of €2,663,588,212.60.
already controls or which are included as a joint arrangement
in the Consolidated Financial Statements is treated as a
transaction between shareholders, as long as this does not
20 Other comprehensive income
Translation adjustments assel, Germany, in connection with the asset swap with
K
Gazprom.
The decline in the value of the euro, especially relative to the For more information on cash flow hedge accounting, see Note 27.4 from
page 213 onward
ruble and the U.S. dollar, in 2016 led to an increase of
€824 million in the translation adjustment to €1,476 million.
Remeasurement of defined benefit plans
Cash flow hedges
Due to the disposal of the 25% share in SolVin to its partner,
Hedging future cash flows at Nord Stream AG, Zug, Switzer- Solvay, of parts of the pharmaceutical ingredient business to
land, a company accounted for using the equity method, Siegfried Holding AG, Zofingen, Switzerland, and the asset
resulted in a change of minus €7 million in 2016 and of
swap with Gazprom, an amount of €68 million resulting from
€16 million in 2015. the remeasurement of defined benefit plans was transferred
The significant decline in the hedging of future cash flows from other comprehensive income into retained earnings in
in 2015 was primarily a result of the disposal of the negative 2015. There were no transfers in 2016.
fair values of commodity derivatives at WINGAS GmbH, For more information on the remeasurement of defined benefit plans,
see Note 22 from page 198 onward
21 Minority interests
December 31, 2016 December 31, 2015
Equity stake Equity stake
Group company Partner % Million € % Million €
WIGA Transport Beteiligungs-GmbH & Co. KG, Gazprom Germania GmbH,
W & G Transport Holding GmbH1, Berlin, Germany
OPAL Gastransport GmbH & Co. KG1 49.981 (43) 49.981 (128)
BASF India Ltd., Mumbai, India Free float 26.67 36 26.67 35
BASF PETRONAS Chemicals Sdn. Bhd., Petroliam Nasional Bhd.,
Shah Alam, Malaysia Kuala Lumpur, Malaysia 40.00 235 40.00 221
BASF TOTAL Petrochemicals LLC, Port Arthur, Texas Total Petrochemicals Inc., Houston, Texas 40.00 260 40.00 249
Shanghai BASF Polyurethane Company Ltd., Shanghai Huayi (Group) Company,
Shanghai, China Shanghai, China, and Sinopec
Shanghai Gaoqiao Petrochemical
Corporation, Shanghai, China 30.00 95 30.00 62
BASF TODA Battery Materials, LLC, Tokyo, Japan TODA KOGYO CORP., Hiroshima, Japan 34.00 34 34.00 39
BASF Shanghai Coatings Co. Ltd., Shanghai, China Shanghai Huayi Fine Chemical Co., Ltd,
Shanghai, China 40.00 56 40.00 49
Other 88 102
Total 761 629
1
Equity stake in W & G Transportation Holding GmbH and OPAL Gastransport GmbH & Co. KG: 50.03%; voting rights and portion of earnings: 49.98%
198 Consolidated Financial Statements BASF Report 2016
Notes — Notes on balance sheet
22 Provisions for pensions and similar obligations
In addition to state pension plans, most employees are Description of the defined benefit plans
granted company pension benefits from either defined
contribution or defined benefit plans. Benefits generally
Germany
depend on years of service, contributions or compensation, Description of the defined benefit plans Germany for BASF SE
and take into consideration the legal framework of labor, tax and German Group companies, a basic level of benefits is
and social security laws of the countries where the companies provided by BASF Pensionskasse VVaG, a legally independent
are located. To limit the risks of changing financial market funded plan, which is financed by contributions of employees
conditions as well as demographic developments, employees and the employer as well as the return on plan assets.
have been almost exclusively offered defined contribution BASF SE ensures the necessary contributions to adequately
plans for future years of service in recent years. finance the benefits promised by BASF Pensionskasse VVaG.
The Group Pension Committee monitors the risks of all Some of the benefits financed via the BASF Pensions
pension plans of the Group. In this connection, it issues kasse VVaG are subject to adjustments that must be borne by
guidelines regarding the governance and risk management of its member companies to the extent that these cannot be
pension plans, particularly with regard to the funding of the borne by BASF Pensionskasse VVaG due to the regulations
pension plans and the portfolio structure of the existing plan imposed by the German supervisory authority. In 2004, the
assets. The organization, responsibilities, strategy, implemen- basic benefits plan at BASF was closed for newly hired
tation and reporting requirements are documented for the employees at German BASF companies and replaced by a
units involved. defined contribution plan. At BASF SE, occupational pension
promises that exceed the basic level of benefits are financed
Economic and legal environment of the plans under a contractual trust arrangement by BASF Pensions
treuhand e.V.; at German Group companies, these benefits
In some countries – especially in Germany, the United are almost exclusively financed via pension provisions. The
Kingdom, Switzerland and Belgium – there are pension
benefits are largely based on cash balance plans. Furthermore,
obligations subject to government supervision or similar legal employees are given the option of participating in various
restrictions. For example, there are minimum funding deferred compensation schemes.
requirements to cover pension obligations, which are based
on actuarial assumptions that may differ from those in IAS 19. United States
Furthermore, there are restrictions in qualitative and Employees are granted benefits based on defined contribution
quantitative terms relating to parts of the plan assets for the plans.
investment in certain asset categories. This could result in Since 2010, the existing defined benefit plans were closed
fluctuating employer contributions, financing requirements and to further increases in benefits based on future years of
the assumption of obligations in favor of the pension funds to service, and benefits earned in the past have been frozen.
comply with the regulatory requirements. There is no entitlement to pension adjustments to compensate
The obligations and the plan assets used to fund the for cost-of-living increases.
obligations are exposed to demographic, legal and economic The legal and regulatory frameworks governing the plans
risks. Economic risks are primarily due to unforeseen are based on the U.S. Employee Retirement Income Security
developments on commodity and capital markets. They affect, Act (ERISA), which requires the plan sponsor to ensure a
for example, pension adjustments based on the level of minimum funding level. Any employer contributions necessary
inflation in Germany and in the United Kingdom, as well as the to meet the minimum funding level would be based on the
impact of the discount rate on the amount of the defined results of an actuarial valuation. Furthermore, there are
benefit obligation. In previous years, measures taken to close unfunded pension plans that are not subject to ERISA.
plans with defined benefits for future service, especially Additional similar obligations arise from plans which
benefits based on final pay promises and the assumption of assume the healthcare costs and life insurance premiums of
healthcare costs for former employees, however, led to a retired employees and their dependents. Such plans are
reduction in risk with regard to future benefit levels. closed to new entrants since 2007. In addition, the amount of
The strategy of the BASF Group with regard to financing the benefits for such plans is frozen.
pension commitments is aligned with country-specific supervi-
sory and tax regulations. Switzerland
The employees of the BASF Group in Switzerland receive a
company pension, which is financed through a pension fund
by employer and employee contributions as well as the return
on assets. The pension plan is accounted for as a defined
benefit plan, as the obligatory minimum pension guaranteed
by law according to the Swiss law “Berufliche Vorsorge (BVG)”
is included in the scheme. All benefits vest immediately.
BASF Report 2016 Consolidated Financial S
tatements 199
Notes — Notes on balance sheet
ccording to government regulations, the employer is
A The financing of the pension plans is determined by the
obligated to make contributions, so that the pension fund is provisions of the regulatory authority for pensions and the
able to grant minimum benefits guaranteed by law. The relevant social and labor law requirements. The defined benefit
pension fund is managed by a board, where employer and plans are administered by a trust company, whose Board of
employees are equally represented, that steers and monitors Trustees, according to the trustee agreement and law,
the benefit plan and assets. represents the interests of the beneficiaries and ensures that
the benefits can be paid in the future. The required funding is
United Kingdom determined using technical valuations according to local
United Kingdom Employees are granted benefits based on a regulations every three years.
defined contribution plan.
A part of the workforce received benefit increases Other countries
depending on service period in connection with a career
In the case of subsidiaries in other countries, defined benefits
average plan until December 31, 2015. The BASF Group
are covered in some cases by pension provisions, but mainly
maintains defined benefit plans in the United Kingdom, which by external insurance companies or pension funds.
were closed for further increases in benefit from future years of
service. Adjustments to compensate for increases in the cost
of living until the beginning of retirement are legally required for
beneficiaries of defined benefit plans.
Actuarial assumptions
The valuation of the defined benefit obligation is largely based on the following assumptions:
Assumptions used to determine the defined benefit obligation as of December 31
United
Germany United States Switzerland Kingdom
2016 2015 2016 2015 2016 2015 2016 2015
Discount rate 1.80 2.50 4.00 4.20 0.60 0.80 2.80 4.00
Projected pension increase 1.50 1.50 – – – – 3.10 2.90
Assumptions used to determine expenses for pension benefits in the respective business year
United
Germany United States Switzerland Kingdom
2016 2015 2016 2015 2016 2015 2016 2015
Discount rate 2.50 2.40 4.20 3.90 0.80 1.00 4.00 3.70
Projected pension increase 1.50 1.75 – – – – 2.90 2.90
The assumptions used to ascertain the defined benefit The valuation of the defined benefit obligation is generally
obligation as of December 31 are used in the following year made using the most recent actuarial mortality tables as of
to determine the expenses for pension plans. December 31 of the respective business year, which in
A Group-wide, uniform procedure is used to determine Germany and the United States are derived from the BASF
the discount rates used for the valuation of material pension Group population and were last updated for the pension
obligations of the BASF Group. Accordingly, the discount obligations in Germany in 2015 and for the pension obligations
rates were derived from the yields on corporate bonds in in the United States in 2014.
the respective currency zones with an issuing volume of
more than 100 million units of the respective currency with Actuarial mortality tables (significant countries) as of Dec. 31, 2016
a minimum rating of AA– up to AA+ from one of the three
rating agencies: Fitch, Moody’s, or Standard & Poor’s. Germany Heubeck Richttafeln 2005G (modified)
United States RP-2014 (modified) with MP-2014 generational
projection
Switzerland BVG 2015 generation
United Kingdom S1PxA (standard actuarial mortality tables for
self-administered plans (SAPS))
200 Consolidated Financial Statements BASF Report 2016
Notes — Notes on balance sheet
Sensitivity analysis
A change in the material actuarial assumptions would have the following effects on the defined benefit obligation:
Sensitivity of the defined benefit obligation as of December 31 (million €)
Increase by 0.5 percentage points Decrease by 0.5 percentage points
2016 2015 2016 2015
Discount rate (1,990) (1,750) 2,270 2,000
Projected pension increase 1,175 1,120 (1,110) (930)
An alternative valuation of the defined benefit obligation was based on alternative changes in the assumptions as well as an
conducted in order to determine how changes in the under addition of combined changes in the individual assumptions is
lying assumptions would influence the amount of the defined not possible.
benefit obligation. A linear extrapolation of these amounts
Explanation of the amounts in the statement of income and balance sheet
Composition of expenses for pension benefits (million €)
2016 2015
Expenses for defined benefit plans 346 385
Expenses for defined contribution plans 281 273
Expenses for pension benefits (recognized in income from operations) 627 658
Net interest expenses from underfunded pension plans and similar obligations 183 196
Net interest income from overfunded pension plans (5) (3)
Interest cost for the asset ceiling – –
Expenses for pension benefits (recognized in the financial result) 178 193
The net interest on the defined benefit liability is recognized in Net interest expense of the respective business year is based
the financial result. This results from the difference between on the discount rate and the defined benefit obligation at the
the interest cost of the defined benefit obligation and the beginning of the year. The net interest expense from under-
standardized return on plan assets as well as the interest cost funded pension plans and similar obligations decreased
for the asset ceiling. The expected contribution payments and compared with the previous year, as a result of the reduced
benefits paid over the course of the business year are net defined benefit liability as of December 31, 2015.
considered in the determination of net interest.
Development of defined benefit obligation (million €)
2016 2015
Defined benefit obligation as of January 1 24,861 25,474
Current service cost 360 397
Interest cost 671 680
Benefits paid (1,024) (1,006)
Participants’ contributions 49 53
Actuarial gains/losses
for adjustments relating to financial assumptions 2,571 (868)
adjustments relating to demographic assumptions (20) (135)
experience adjustments 66 (103)
Effects from acquisitions and divestitures 148 (313)
Past service cost (14) (48)
Plan settlements – –
Other changes (2) (65)
Currency effects (63) 795
Defined benefit obligation as of December 31 27,603 24,861
BASF Report 2016 Consolidated Financial S
tatements 201
Notes — Notes on balance sheet
As of December 31, 2016, the weighted average duration of led to an increase in the weighted average duration of the
the defined benefit obligation amounted to 15.7 years ( previous defined benefit obligations.
year: 15.3 years). The significant decline in the discount rate
Development of plan assets (million €)
2016 2015
Plan assets as of January 1 18,681 18,252
Standardized return on plan assets 492 487
Deviation between actual and standardized return on plan assets 775 (145)
Employer contributions 207 284
Participants’ contributions 49 53
Benefits paid (627) (630)
Effects from acquisitions and divestitures 64 (165)
Past service cost – (36)
Plan settlements – –
Other changes (20) (39)
Currency effects (161) 620
Plan assets as of December 31 19,460 18,681
The standardized return on plan assets is calculated by The expected contribution payments for 2017 amount to
multiplying plan assets at the beginning of the year with the approximately €700 million.
discount rate used for existing defined benefit obligation at the
beginning of the year, taking into account benefit and
contribution payments expected to be made during the year.
Development of the net defined benefit liability (million €)
2016 2015
Net defined benefit liability as of January 1 (6,180) (7,222)
Current service cost (360) (397)
Interest cost (671) (680)
Standardized return on plan assets 492 487
Deviation between actual and standardized return on plan assets 775 (145)
Actuarial gains/losses of the defined benefit obligation (2,617) 1,106
Benefits paid by unfunded plans 397 376
Employer contributions 207 284
Effects from acquisitions and divestitures (84) 148
Past service cost 14 12
Other changes (18) 26
Currency effects (98) (175)
Net defined benefit liability as of December 31 (8,143) (6,180)
Thereof defined benefit assets 66 133
provisions for pensions and similar obligations (8,209) (6,313)
Regional allocation of defined benefit plans as of December 31 (million €)
Pension obligations Plan assets Net defined benefit liability
2016 2015 2016 2015 2016 2015
Germany 18,242 16,029 12,282 11,671 (5,960) (4,358)
United States 4,524 4,356 2,806 2,717 (1,718) (1,639)
Switzerland 2,272 2,108 1,974 1,939 (298) (169)
United Kingdom 1,909 1,780 1,898 1,890 (11) 110
Other 656 588 500 464 (156) (124)
Total 27,603 24,861 19,460 18,681 (8,143) (6,180)
202 Consolidated Financial Statements BASF Report 2016
Notes — Notes on balance sheet
Explanations regarding plan assets grade bonds, whereby particular high-yield bonds are also
held to a limited extent. In connection with the ongoing
The target asset allocation has been defined by using asset monitoring of default risk based on a given risk budget and on
liability studies and is reviewed regularly. Accordingly, plan the continuous observation of the development of the
assets are aligned with the long-term development of the creditworthiness of issuers, an adjustment of plan asset
obligations, taking into consideration the risks associated with allocation to a revised market assessment may be made, if
the specific asset classes and the regulations relating to the necessary. Alternative investments largely comprise invest-
investment of plan assets. The existing portfolio structure is ments in private equity, absolute return funds and senior
oriented towards the target asset allocation. In addition, secured loans.
current market assessments are taken into consideration. In Almost all of the equities are priced on active markets.
order to mitigate risks and maximize returns, a widely spread The category debt instruments includes promissory notes
global portfolio of individual asset classes is held. and debentures (Pfandbriefe), which were acquired through
Liability-driven investment (LDI) techniques, such as private placements with a market value in the amount of
hedging the risk of changes in interest rates and inflation, are €853 million as of December 31, 2016, and €1,072 million as
used in some pension plans, especially in the U.K. and U.S. of December 31, 2015. For such securities, especially those
plans. held by domestic pension plans, there is no active market. The
capital market compensates for this lack of fungibility with
Structure of plan assets (%) yield premiums depending on the maturity. With only a few
exceptions, there is no active market for plan assets in real
2016 2015 estate and alternative investments.
Equities 28 26 Plan assets contained securities issued by BASF Group
Debt instruments 53 54 companies with a market value of €16 million on Decem-
Thereof for government debtors 16 15 ber 31, 2016 and €11 million on December 31, 2015. The
for other debtors 37 39 market value of the properties of legally independent pension
Real estate 4 4 funds rented to BASF Group companies amounted to
Alternative investments 15 15 €117 million on December 31, 2016, and €151 million on
Cash and cash equivalents – 1 December 31, 2015.
Total 100 100 Since 2010 there has been an agreement between
BASF SE and BASF Pensionskasse about the granting of
The asset class debt instruments comprises promissory profit participation capital with a nominal value of €80 million,
notes and debentures (Pfandbriefe) in addition to corporate which is used to strengthen the financing of the BASF Pen-
and government bonds. Government bonds primarily concern sionskasse. No material transactions beyond this took place
bonds from those countries enjoying the highest credit ratings, between the legally independent pension funds and BASF
such as the United States, United Kingdom, Germany and Group companies in 2016.
Switzerland. Corporate bonds mainly comprise investment- The funding of the plans was as follows:
Current funding situation of the pension plans as of December 31 (million €)
2016 2015
Defined benefit Defined benefit
obligation Plan assets obligation Plan assets
Unfunded pension plans 2,869 – 2,611 –
Funded pension plans 24,734 19,460 22,250 18,681
Total 27,603 19,460 24,861 18,681
Defined contribution plans and government pensions Contributions to government pension plans were €590 million
in 2016 and €609 million in 2015.
The contributions to defined-contribution plans contained in
income from operations amounted to €281 million in 2016 and
€273 million in 2015.
BASF Report 2016 Consolidated Financial S
tatements 203
Notes — Notes on balance sheet
23 Other provisions
December 31, 2016 December 31, 2015
Million € Thereof current Thereof current
Restoration obligations 1,297 29 1,266 72
Environmental protection and remediation costs 588 116 538 59
Employee obligations 1,933 1,217 1,569 1,150
Obligations from sales and purchase contracts 928 919 775 763
Restructuring measures 208 161 196 165
Litigation, damage claims, warranties and similar commitments 109 37 86 29
Other 1,406 323 1,479 302
Total 6,469 2,802 5,909 2,540
Restoration obligations primarily relate to the estimated The restructuring measures provisions include severance
costs for the filling of wells and the removal of production payments to departing employees as well as expected costs
equipment after the end of production in the Oil & Gas for site closures, including the costs for demolition and similar
segment. measures.
Provisions for environmental protection and remedia- Provisions for litigation, damage claims, warranties and
tion costs cover expected costs for rehabilitating conta similar commitments contain anticipated expenses from
minated sites, recultivating landfills, removal of environmental lawsuits in which BASF is the defendant party, as well as
contamination at existing production or storage sites and obligations under damage claims against BASF and fines.
similar measures. Other largely includes noncurrent tax provisions.
Provisions for employee obligations primarily include The following table shows the development of other
obligations for the granting of long-service bonuses and provisions by category. Other changes include changes in the
anniversary payments, variable compensation including
scope of consolidation, acquisitions, divestitures, currency
associated social security contributions, as well as provisions effects and the reclassification of obligations to liabilities when
for early retirement programs for employees nearing r etirement. the amount and timing of these obligations become known.
The increase was primarily attributable to higher accruals for
the long-term Incentive (LTI) program.
For more information on provisions for the long-term incentive program,
see Note 30 from page 216 onward
Obligations from sales and purchase contracts largely
include obligations arising from rebates granted and other
price discounts in the Agricultural Solutions segment,
warranties and product liability, sales commissions, expected
losses on contracts. The increase in provisions resulted from
higher accruals for rebate programs.
Development of other provisions in 2016 (million €)
Unwinding
of the Other Dec. 31,
Jan. 1, 2016 Additions discount Utilization Reversals changes 2016
Restoration obligations 1,266 118 27 (72) (62) 20 1,297
Environmental protection and remediation
costs 538 110 5 (65) (10) 10 588
Employee obligations 1,569 1,561 3 (1,132) (50) (18) 1,933
Obligations from sales and purchase
contracts 775 743 – (575) (59) 44 928
Restructuring measures 196 117 – (84) (27) 6 208
Litigation, damage claims, warranties
and similar commitments 86 51 – (30) (13) 15 109
Other 1,479 317 1 (201) (139) (51) 1,406
Total 5,909 3,017 36 (2,159) (360) 26 6,469
204 Consolidated Financial Statements BASF Report 2016
Notes — Notes on balance sheet
24 Liabilities
Financial indebtedness (million €)
Carrying amounts based on
effective interest method
Nominal value
(million, Effective December 31, December 31,
Currency currency of issue) interest rate 2016 2015
BASF SE
Commercial paper USD 1,089 1,033 1,714
4.5% Bond 2006/2016 EUR 500 4.62% – 500
Variable Bond 2013/2016 EUR 200 variable – 200
4.25% Bond 2009/2016 EUR 200 4.40% – 200
Variable Bond 2014/2017 EUR 300 variable 300 300
5.875% Bond 2009/2017 GBP 400 6.04% 467 544
4.625% Bond 2009/2017 EUR 300 4.69% 300 300
1.375% Bond 2014/2017 GBP 250 1.46% 292 340
Variable Bond 2013/2018 EUR 300 variable 300 300
1.5% Bond 2012/2018 EUR 1,000 1.51% 999 1,000
1.375% Bond 2014/2019 EUR 750 1.44% 749 749
Variable Bond 2013/2020 EUR 300 variable 300 300
1.875% Bond 2013/2021 EUR 1,000 1.47% 1,016 698
2% Bond 2012/2022 EUR 1,250 1.93% 1,255 1,256
0.875% Bond 2016/2023 GBP 250 1.06% 289 –
2.5% Bond 2014/2024 EUR 500 2.60% 497 496
3.675% Bond 2013/2025 NOK 1,450 3.70% 159 151
1.5% Bond 2016/2031 EUR 200 1.58% 198 –
0.875% Bond 2016/2031 EUR 500 1.01% 491 –
2.37% Bond 2016/2031 HKD 1,300 2.37% 159 –
3% Bond 2013/2033 EUR 500 3.15% 491 490
2.875% Bond 2013/2033 EUR 200 3.09% 198 198
3.25% Bond 2013/2043 EUR 200 3.27% 199 199
3.89% U.S. Private Placement Series A 2013/2025 USD 250 3.92% 237 229
4.09% U.S. Private Placement Series B 2013/2028 USD 700 4.11% 663 641
4.43% U.S. Private Placement Series C 2013/2034 USD 300 4.45% 284 275
BASF Finance Europe N.V.
0.0% Bond 2016/2020 EUR 1,000 0.14% 995 –
0.75% Bond 2016/2026 EUR 500 0.88% 494 –
Ciba Specialty Chemicals Finance Luxembourg S.A.
4.875% Bond 2003/2018 EUR 477 4.88% 461 449
Other bonds 631 672
Bonds and other liabilities to the capital market 13,457 12,201
Liabilities to credit institutions 2,855 2,996
Financial indebtedness 16,312 15,197
On December 14, 2016, BASF SE issued a 2.67% NOK bond effective January 3, 2017, in the amount of NOK 1,600 million
with an annual effective interest rate of 2.69% and term of 12 years.
BASF Report 2016 Consolidated Financial S
tatements 205
Notes — Notes on balance sheet
Breakdown of financial indebtedness by currency (million €)
December 31, 2016 December 31, 2015
Euro 10,897 9,499
U.S. dollar 3,346 3,659
British pound 1,048 884
Argentinian peso 194 167
Norwegian krone 159 151
Hong Kong dollar 159 –
Chinese renminbi 118 261
Brazilian real 113 268
Turkish lira 59 74
Ukrainian hryvnia 55 65
Indian rupee 34 81
Other currencies 130 88
Total 16,312 15,197
Maturities of financial indebtedness (million €)
December 31, 2016 December 31, 2015
Following year 1 3,767 4,074
Following year 2 1,887 1,625
Following year 3 2,115 1,865
Following year 4 1,304 2,099
Following year 5 1,049 303
Following year 6 and maturities beyond this year 6,190 5,231
Total 16,312 15,197
Other bonds Unused credit lines
Other bonds consist primarily of industrial revenue and BASF SE had committed and unused credit lines with variable
pollution control bonds of the BASF Corporation group that interest rates amounting to €6,000 million both as of Decem-
were used to finance investments in the United States. Both ber 31, 2016 and as of December 31, 2015.
the weighted-average interest rate of these bonds as well as
their weighted-average effective interest rate amounted to
2.1% in 2016 and 1.5% in 2015. The average residual term
amounted to 195 months as of December 31, 2016 (Decem-
ber 31, 2015: 210 months).
Liabilities to credit institutions
In order to finance the natural gas transportation business, a
€1,650 million loan was incurred with a 5-year term at an
interest rate of 1.08% in 2014.
The weighted average interest rate on loans amounted to
4.5% in 2016 compared with 4.9% in 2015.
206 Consolidated Financial Statements BASF Report 2016
Notes — Notes on balance sheet
Other liabilities (million €)
December 31, 2016 December 31, 2015
Current Noncurrent Current Noncurrent
Derivative instruments with negative fair values 571 78 288 75
Liabilities from finance leases 22 84 22 60
Loans and interest liabilities 199 280 331 265
Miscellaneous liabilities 791 97 732 43
Other liabilities which qualify as financial instruments 1,583 539 1,373 443
Advances received on orders 556 – 447 –
Liabilities related to social security 68 95 73 95
Employee liabilities 310 45 218 147
Liabilities from precious metal trading positions 13 – 73 –
Deferred income 66 171 71 163
Miscellaneous liabilities 254 23 265 21
Other liabilities which do not qualify as financial instruments 1,267 334 1,147 426
Other liabilities 2,850 873 2,520 869
Other liabilities Secured liabilities (million €)
The increase in other liabilities mainly related to higher, Dec. 31, Dec. 31,
2016 2015
current negative fair market values arising from the hedging of
Liabilities to credit institutions 24 26
combined interest and currency swaps on the U.S. dollar and
Other liabilities 69 24
Brazilian real as well as foreign currency forward contracts for
Secured liabilities 93 50
U.S. dollar and Brazilian real as well as euro and U.S. dollar.
For more information on financial risks and derivative instruments, see
Note 27 from page 208 onward Liabilities to credit institutions were secured primarily with
For more information on liabilities arising from leasing contracts, see registered land charges. The increase in secured other liabili-
Note 28 from page 214 onward
ties compared with December 31, 2015, is primarily attri
butable to higher collateral for derivative instruments with
negative fair values. As in the previous year, there were no
secured contingent liabilities in 2016.
25 Other financial obligations
The figures listed below are stated at nominal value:
Million € December 31, 2016 December 31, 2015
Bills of exchange 9 6
Guarantees 12 49
Warranties 43 87
Collateral granted on behalf of third-party liabilities 1 –
Initiated investment projects 5,394 4,672
Thereof purchase commitments 1,391 1,429
for the purchase of intangible assets 7 10
Payment and loan commitments and other financial obligations 25 80
BASF provides unlimited guarantees, particularly to the Danish Partially countering the possible 100% liability of BASF arising
government as well as the state-owned company Nordsøfon- from these guarantees are the 50% guarantees of the joint-
den, as a precondition for the exploration for and production of venture partner in favor of BASF. Drawing on these guarantees
hydrocarbons in the Danish concession area by the joint was not forseeable as of December 31, 2016.
venture Wintershall Noordzee B.V., Rjswijk, the Netherlands.
BASF Report 2016 Consolidated Financial S
tatements 207
Notes — Notes on balance sheet
Assets used under long-term leases Obligations arising from purchase contracts
Assets used under long-term leases primarily concerned Obligations arising from purchase contracts resulted primarily
buildings and IT infrastructure. from long-term purchase obligations for raw materials. Firm
For more information on liabilities arising from leasing contracts, see purchase obligations as of December 31, 2016, were as
Note 28 from page 214 onward
follows:
Obligations arising from long-term leases Obligations arising from purchase contracts (million €)
(excluding finance leases) (million €)
2017 7,805
2017 360
2018 4,499
2018 279
2019 3,764
2019 202
2020 2,632
2020 151
2021 2,540
2021 125
2022 and maturities beyond this year 8,590
2022 and maturities beyond this year 396
Total 29,830
Total 1,513
26 Risks from litigation and claims
In the arbitration proceedings initiated in May 2013, Metro- other defendants, alleging violations of antitrust and
gas S.A., Chile, claims damages valued in an amount of commodities laws stemming from the price discovery process
€227 million as a result of insufficient gas deliveries against for platinum and palladium. BML, based in the United
Wintershall Energía S.A., Argentina (WIAR), Total Austral S.A., Kingdom, and the other defendants are accused of improper
Argentina, and Pan American Energy LLC, Argentina. The conduct concerning the calculation of the market prices of
defendants, as sellers, concluded a natural gas supply platinum and palladium. Four additional lawsuits were filed
contract with Metrogas in 1997. WIAR’s share of supply in the between November 2014 and March 2015. The lawsuits were
contract is 37.5%. After the resignation of the chairman of the consolidated, and a Second Consolidated Amended Class
Arbitral Tribunal in mid-2016, the International Chamber of Action Complaint was eventually filed in July 2015. This
Commerce (ICC) nominated a new Arbitral Tribunal that will be Complaint also names as a defendant, among others, BASF
pursuing the arbitration proceedings during 2017. The defen- Corporation. On September 21, 2015, defendants filed a Joint
dants are of the opinion that Metrogas does not have any Motion to Dismiss the Second Consolidated Amended Class
claim for damages Action Complaint, and BML and BASF Corporation filed
BASF Corporation has potential liability under the individual motions to dismiss. In addition, a pro se complaint
Comprehensive Response, Compensation and Liability Act of with similar allegations was filed in the same court in Septem-
1980, as amended, and related state laws for investigation ber 2015. Motions to dismiss the pro se complaint have also
and cleanup at certain sites. The Lower Passaic River Study been filed. Pre-trial discovery is stayed pending resolution of
Area (LPRSA) is one such site comprising the lower 17 miles of the motions to dismiss. In April 2015, BML received from the
the Passaic River in New Jersey. In 2016, the United States European Commission written requests for information
Environmental Protection Agency selected a final remedy for regarding platinum and palladium trading BML provided
the lower 8 miles of the River. BASF Corporation and more responsive information to the European Commission most
than 60 other companies (collectively, the Lower Passaic River recently in the spring of 2016. Since then, BML has not
Study Area Cooperating Parties Group or CPG) are conduct- received any requests for further information or follow up.
ing a remedial investigation / feasibility study (RI/FS) of the Furthermore, BASF SE and its affiliated companies are
entire 17 miles of the River. A decision on the remedy for the defendants in or parties to a variety of judicial, arbitrational or
upper portion of the River will be made following completion of regulatory proceedings on a recurring basis. To our current
the RI/FS. knowledge, none of these proceedings will have a material
In November 2014, a putative class action lawsuit was effect on the economic situation of BASF.
filed in the United States District Court of the Southern District
of New York against BASF Metals Limited (BML) along with
208 Consolidated Financial Statements BASF Report 2016
Notes — Notes on balance sheet
27 Supplementary information on financial instruments
27.1 Financial risks Exposure and sensitivity by currency (million €)
Market risks December 31, 2016 December 31, 2015
Exposure Sensitivity Exposure Sensitivity
Foreign currency risks: Changes in exchange rates could USD 1,849 (241) 2,057 (260)
lead to negative changes in the value of financial instruments Other 264 (35) 144 (28)
and adverse changes in future cash flows from planned Total 2,113 (276) 2,201 (288)
transactions. Foreign currency risks from financial instruments
result from the translation at the closing rate of financial Due to the use of options to hedge currency risks, the
receivables, loans, securities, cash and financial liabilities into sensitivity analysis is not a linear function of the assumed
the functional currency of the respective Group company. changes in exchange rates.
Foreign currency contracts in a variety of currencies are used Interest rate risks: Interest rate risks result from changes
to hedge foreign exchange risks from primary financial in prevailing market interest rates, which can cause a change
instruments and planned transactions. in the fair value of fixed-rate instruments, and changes in the
The foreign currency risk exposure corresponds to the net interest payments of variable-rate instruments. To hedge these
amount of the nominal volume of the primary and the derivative risks, interest rate swaps and combined interest rate and
financial instruments which are exposed to currency risks. In currency derivatives are used. While these risks are relevant to
addition, planned purchase and sales transactions of the the financing activities of BASF, they are not of material
respective following year are included, if they fall under the significance for BASF’s operating activities.
currency risk management system. Long and short positions The variable interest exposure, which also includes fixed
in the same currency are offset against each other. rate bonds set to mature in the following year, amounted to
The sensitivity analysis is conducted by simulating a 10% minus €2,447 million (2015: minus €2,786 million). An increase
appreciation of the respective functional currency against in all relevant interest rates by one percentage point would
the other currencies. The effect on BASF’s income before have raised income before taxes and minority interests by
taxes and minority interests would have been minus €300 mil- €1 million as of December 31, 2016, and raised income b efore
lion as of December 31, 2016, and minus €340 million as taxes and minority interests by €7 million as of Decem-
of December 31, 2015. The effect from the items designated ber 31, 2015. The effect from the items designated under
under hedge accounting would have increased the equity hedge accounting would have increased the equity of the
of the shareholders of BASF SE before income taxes by shareholders of BASF SE before income taxes by €16 million
€24 million as of December 31, 2016 (2015: increase of as of December 31, 2016 (2015: increase of €20 million).
€52 million). This only refers to transactions in U.S. dollars. The
foreign currency risk exposure amounted to €2,113 million as
of Decem ber 31, 2016 and €2,201 million as of Decem-
ber 31, 2015.
Carrying amount of nonderivative interest-bearing financial instruments (million €)
December 31, 2016 December 31, 2015
Fixed Variable Fixed Variable
interest rate interest rate interest rate interest rate
Loans 208 610 258 744
Securities 105 568 69 58
Financial indebtedness 12,564 3,748 11,114 4,083
Nominal and fair values of interest rate swaps and combined interest and cross-currency swaps (million €)
December 31, 2016 December 31, 2015
Nominal value Fair value Nominal value Fair value
Interest rate swaps 1,700 (27) 1,900 (31)
Thereof payer swaps 1,700 (27) 1,900 (31)
Combined interest and cross-currency swaps 2,745 45 2,047 315
Thereof fixed rate 2,476 121 1,856 297
BASF Report 2016 Consolidated Financial S
tatements 209
Notes — Notes on balance sheet
Commodity price risks: Some of BASF’s divisions are BASF performs value-at-risk analyses for all commodity
exposed to strong fluctuations in raw material prices. These derivatives and precious metals trading positions. Using the
result primarily from raw materials (for example, naphtha, value-at-risk analysis, we continually quantify market risk and
propylene, benzene, lauric oils, cyclohexane, methanol,
forecast the maximum possible loss within a given confidence
natural gas, butadiene, LPG condensate and ammonia) as interval over a defined period. The value-at-risk calculation is
well as from precious metals. BASF takes the following based on a confidence interval of 95% and a holding period of
measures to reduce price risks associated with the purchase one day. The value-at-risk calculation for precious metals is
of raw materials: based on a confidence interval of 99%. BASF uses the
––BASF uses commodity derivatives to hedge the risks from variance-covariance approach.
the volatility of raw material prices. These are primarily BASF uses value at risk as a supplement to other risk
options and swaps on crude oil, oil products and natural management tools. Besides value at risk, BASF sets volume-
gas. based limits as well as exposure and stop-loss limits.
––In order to secure margins, the Oil & Gas segment used
commodity derivatives, primarily swaps on oil products, up Exposure to commodity derivatives (million €)
to the completion of the asset swap with Gazprom in 2015.
Risks to margins arise in volatile markets when purchase December 31, 2016 December 31, 2015
and sales contracts are priced differently. Value at Value at
Exposure Risk Exposure Risk
––The Catalysts division enters into both short-term and long-
Crude oil, oil products
term purchase contracts with precious metal producers. It and natural gas 6 1 58 2
also buys precious metals on spot markets from a variety of Precious metals 5 1 23 1
business partners. The price risk from precious metals Emission certificates – – 10 1
purchased to be sold on to third parties, or for use in the Agricultural
production of catalysts, is hedged using derivative instru- commodities (40) 0 0 0
ments. This is mainly done using forward contracts which Total (29) 2 91 4
are settled by either entering into offsetting contracts or by
delivering the precious metals.
––In the Crop Protection division, the sales prices of products The exposure corresponds to the net amount of all long and
are sometimes coupled to the price of certain agricultural short positions of the respective commodity category.
commodities. To hedge the resulting risks, derivatives on For more information regarding financial risks and BASF’s risk manage-
ment, see the chapter “Opportunities and risks report” in the Manage-
agricultural commodities are concluded. ment’s Report from page 111 onward
In addition, BASF holds limited unhedged precious metal and
oil product positions, which can also include derivatives, for Default and credit risk
trading on its own account. The value of these positions is
exposed to market price volatility and is subject to constant Default and credit risks arise when counterparties do not fulfill
monitoring. their contractual obligations. BASF regularly analyzes the
In connection with CO2 emissions trading, various types of creditworthiness of each significant debtor and grants credit
CO2 certificates are purchased and sold using forward con- limits on the basis of this analysis. Due to the global activities
tracts. The goal of these transactions is to benefit from market and diversified customer s tructure of the BASF Group, there
price differences. These deals are settled by physical delivery. is no significant concen tration of default risk. The carrying
As of December 31, 2016 as well as of December 31, 2015, amount of all receivables, loans and interest-bearing securities
there were no deals outstanding. plus the nominal value of other financial obligations subject to
By holding commodity derivatives and precious metal default risk represents the maximum default risk for BASF.
trading positions, BASF is exposed to price risks. The valuation For more information on credit risks, see Note 18 from page 195 onward
of commodity derivatives and precious metal trading positions
at fair value means that adverse changes in market prices Liquidity risks
could negatively affect the earnings and equity of BASF.
BASF promptly recognizes any risks from cash flow fluctua-
tions as part of the liquidity planning. BASF has ready access
to sufficient liquid funds from our ongoing commercial paper
program and confirmed lines of credit from banks.
210 Consolidated Financial Statements BASF Report 2016
Notes — Notes on balance sheet
27.2 Maturity analysis Trade accounts payable are generally interest-free and due
The interest and principal payments as well as other payments within one year. Therefore, the carrying amount of trade
for derivative financial instruments are relevant for the presen- accounts payable equals the sum of future cash flows.
tation of the maturities of the contractual cash flows from
financial liabilities. Future cash flows are not discounted here.
Derivatives are included using their net cash flows,
provided they have a negative fair value and therefore repre-
sent a liability. Derivatives with positive fair values are assets
and are therefore not considered.
Maturities of contractual cash flows from financial liabilities as of December 31, 2016 (million €)
Liabilities
Bonds and other Liabilities resulting from
liabilities to the to credit derivative finan Miscellaneous
capital market institutions cial instruments liabilities Total
2017 2,687 1,356 561 1,097 5,701
2018 2,025 128 15 88 2,256
2019 936 1,368 11 47 2,362
2020 1,475 10 13 53 1,551
2021 1,163 5 – 81 1,249
2022 and thereafter 7,269 4 60 305 7,638
Total 15,555 2,871 660 1,671 20,757
Maturities of contractual cash flows from financial liabilities as of December 31, 2015 (million €)
Liabilities
Bonds and other Liabilities resulting from
liabilities to the to credit derivative finan Miscellaneous
capital market institutions cial instruments liabilities Total
2016 2,979 1,414 339 1,258 5,990
2017 1,738 145 8 47 1,938
2018 2,001 119 13 28 2,161
2019 910 1,351 8 18 2,287
2020 449 3 14 14 480
2021 and thereafter 6,497 8 43 315 6,863
Total 14,574 3,040 425 1,680 19,719
27.3 Classes and categories of financial instru- The fair value of financial indebtedness is determined on the
ments basis of interbank interest rates. The difference between carry-
For trade accounts receivable, other receivables and miscella- ing amounts and fair values results primarily from changes in
neous assets, loans, cash and cash equivalents, as well as market interest rates.
trade accounts payable and other liabilities, the carrying
amount approximates the fair value. Shareholdings which are
not traded on an active market and whose fair value could not
be reliably determined are recognized at amortized cost and
are reported under other financial assets.
BASF Report 2016 Consolidated Financial S
tatements 211
Notes — Notes on balance sheet
Carrying amounts and fair values of financial instruments as of December 31, 2016 (million €)
Total carrying
amount within Valuation
scope of category in Thereof Thereof Thereof
Carrying application of accordance fair value fair value fair value
amount IFRS 7 with IAS 392 Fair value level 13 level 24 level 35
Shareholdings1 468 468 Afs – – – –
Receivables from finance leases 34 34 n.a. 34 – – –
Accounts receivable, trade 10,952 10,952 LaR 10,952 – – –
Derivatives – no hedge accounting 346 346 aFVtPL 346 14 332 –
Derivatives – with hedge accounting 172 172 n.a. 172 – 172 –
Other receivables and other assets6 3,736 1,370 LaR 1,370 – – –
Securities 672 672 Afs 672 672 – –
Securities 1 1 Htm – – – –
Cash and cash equivalents 1,375 1,375 LaR 1,375 1,375 – –
Total assets 17,756 15,390 14,921 2,061 504 –
Bonds 12,424 12,424 AmC 13,144 – – –
Commercial paper 1,033 1,033 AmC 1,033 – – –
Liabilities to credit institutions 2,855 2,855 AmC 2,855 – – –
Liabilities from finance leases 106 106 n.a. 106 – – –
Accounts payable, trade 4,610 4,610 AmC 4,610 – – –
Derivatives – no hedge accounting 623 623 aFVtPL 623 0 623 –
Derivatives – with hedge accounting 26 26 n.a. 26 – 26 –
Other liabilities 6 2,968 1,367 AmC 1,367 – – –
Total liabilities 24,645 23,044 23,764 0 649 –
Carrying amounts and fair values of financial instruments as of December 31, 2015 (million €)
Total carrying
amount within Valuation
scope of category in Thereof Thereof Thereof
Carrying application of accordance fair value fair value fair value
amount IFRS 7 with IAS 392 Fair value level 13 level 24 level 35
Shareholdings1 420 420 Afs 0 0 – –
Receivables from finance leases 41 41 n.a. 41 – – –
Accounts receivable, trade 9,516 9,516 LaR 9,516 – – –
Derivatives – no hedge accounting 650 650 aFVtPL 650 42 608 –
Derivatives – with hedge accounting 208 208 n.a. 208 – 208 –
Other receivables and other assets6 3,916 1,508 LaR 1,508 – – –
Securities 127 127 Afs 127 127 – –
Securities – – Htm – – – –
Cash and cash equivalents 2,241 2,241 LaR 2,241 2,241 – –
Total assets 17,119 14,711 14,291 2,410 816 –
Bonds 10,487 10,487 AmC 11,109 – – –
Commercial paper 1,714 1,714 AmC 1,714 – – –
Liabilities to credit institutions 2,996 2,996 AmC 2,996 – – –
Liabilities from finance leases 82 82 n.a. 82 – – –
Accounts payable, trade 4,020 4,020 AmC 4,020 – – –
Derivatives – no hedge accounting 334 334 aFVtPL 334 22 312 –
Derivatives – with hedge accounting 29 29 n.a. 29 – 29 –
Other liabilities 6 2,944 1,371 AmC 1,371 – – –
Total liabilities 22,606 21,033 21,655 22 341 –
1
The difference between carrying amount and fair value results from shareholdings measured at acquisition cost, for which the fair value could not be reliably determined (2016:
€468 million; 2015: €420 million).
2
Afs: available-for-sale (category: available-for-sale financial assets); LaR: loans and receivables (category: loans and receivables); aFVtPL: at-fair-value-through-profit-or-loss (category:
financial assets and liabilities at fair value recognized in the income statement); AmC: amortized cost (category: financial liabilities which are not derivatives); Htm: Held-to-maturity
(category: financial assets held to maturity); a more detailed description of the categories can be found in Note 1 from page 160 onward.
3
Determination of the fair value based on quoted, unadjusted prices on active markets
4
Determination of the fair value based on parameters for which directly or indirectly quoted prices on active markets are available
5
Determination of the fair value based on parameters for which there is no observable market data
6
Not including separately shown derivatives as well as receivables and liabilities from finance leases
212 Consolidated Financial Statements BASF Report 2016
Notes — Notes on balance sheet
Offsetting of financial assets and financial liabilities as of December 31, 2016 (million €)
Amounts which can be offset Amounts which cannot be offset
Due to global Relating to
netting financial Potential
Gross amount Amount offset Net amount agreements collateral net amount
Derivatives with positive fair values 491 (46) 445 (101) (124) 220
Derivatives with negative fair values 515 (46) 469 (101) (47) 321
Offsetting of financial assets and financial liabilities as of December 31, 2015 (million €)
Amounts which can be offset Amounts which cannot be offset
Due to global Relating to
netting financial Potential
Gross amount Amount offset Net amount agreements collateral net amount
Derivatives with positive fair values 710 (22) 688 (134) (296) 258
Derivatives with negative fair values 348 (22) 326 (134) (7) 185
The table “Offsetting of financial assets and financial liabilities” Net gains and losses from financial instruments comprise the
shows the extent to which financial assets and financial results of valuations, the amortization of discounts, the recog-
liabilities are offset in the balance sheet, as well as potential nition and reversal of impairments, results from the translation
effects from the offsetting of instruments subject to a legally of foreign currencies as well as interest, dividends and all other
enforceable global netting agreement or similar agreement. effects on the earnings resulting from financial instruments.
For positive fair values of combined interest and cross- The line item financial instruments at fair value through profit or
currency swaps, the respective counterparties provided cash loss contains only those gains and losses from instruments
collaterals in corresponding amounts to the outstanding fair which are not designated as hedging instruments as defined
values. by IAS 39. Net gains or net losses from available-for-sale
Deviations from the derivatives with positive fair values and financial assets contain income and expenses from write-
derivatives with negative fair values reported in other downs/write-ups, interest, dividends and the reclassification of
receivables and other liabilities at the end of 2016 and 2015 valuation effects from equity on the sale of the securities and
arose from derivatives not subject to any netting agreements shareholdings.
as well as embedded derivatives and are therefore not
included in the table above.
Net gains and losses from financial instruments (million €)
2016 2015
Loans and receivables (166) (31)
Thereof interest result 74 105
Available-for-sale financial assets 22 10
Thereof interest result 2 0
Financial liabilities measured at amortized cost (124) (1,127)
Thereof interest result (390) (375)
Financial instruments at fair value through profit or loss (558) 595
The decrease in net losses from financial liabilities measured loss. This development is primarily due to realized and
at amortized cost primarily related to currency translation of unrealized results from derivatives to hedge the liabilities
financing-related liabilities denominated in foreign currencies, previously stated.
which resulted in a translation gain in 2016 and a translation The gains and losses from the valuation of securities and shareholdings
recognized in the equity of the shareholders of BASF SE are shown in
loss in 2015. Countering this was a net loss in 2016 from the Statement of income and expense recognized in equity on page 156
financial instruments measured at fair value through profit or
BASF Report 2016 Consolidated Financial S
tatements 213
Notes — Notes on balance sheet
27.4 Derivative instruments and hedge the event of nonperformance of the other party. To minimize
accounting the default risk on derivatives with positive market values,
transactions are exclusively conducted with creditworthy
The use of derivative instruments banks and partners and are subject to predefined credit limits.
To ensure effective risk management, risk positions are
BASF is exposed to foreign-currency, interest-rate and com- centralized at BASF SE and certain Group companies. The
modity-price risks during the normal course of business. contracting and execution of derivative financial instruments
These risks are hedged through a centrally determined for hedging purposes are conducted according to internal
strategy employing derivative instruments. Hedging is only
guidelines, and subject to strict control mechanisms.
employed for underlying items from the operating business, The fair values of derivative financial instruments are
cash investments, and financing as well as for planned sales, calculated using valuation models which use input parameters
raw material purchases and capital measures. The risks from observable on the market. Exceptions to this are some
the underlying transactions and the derivatives are constantly commodity derivatives, whose valuation is based directly on
monitored. Where derivatives have a positive market value, market prices.
BASF is exposed to credit risks from derivative transactions in
Fair value of derivative instruments (million €)
December 31, 2016 December 31, 2015
Foreign currency forward contracts (163) 56
Foreign currency options 15 53
Foreign currency derivatives (148) 109
Thereof designated hedging instruments as defined by IAS 39 (hedge accounting) 3 8
Interest rate swaps (27) (31)
Thereof designated hedging instruments as defined by IAS 39 (hedge accounting) (21) (27)
Combined interest and cross-currency swaps 45 315
Thereof designated hedging instruments as defined by IAS 39 (hedge accounting) 163 197
Interest derivatives 18 284
Commodity derivatives (1) 102
Thereof designated hedging instruments as defined by IAS 39 (hedge accounting) 1 1
Derivative financial instruments (131) 495
Cash flow hedge accounting The planned transactions and their effect on earnings occur in
the year following the balance sheet date. In 2016, effective
Some of the planned purchases of naphtha are hedged using changes in the fair value of hedging instruments of €1 million
swaps and options on oil and oil products. Some of these (2015: €35 million) was recognized in the equity of the
hedges were shown in the Consolidated Financial Statements shareholders of BASF SE. In 2016, effective changes in the fair
of the BASF Group by means of cash flow hedge accounting, value of hedging instruments of €1 million were derecognized
where gains and losses from hedges were initially recognized from the equity of shareholders of BASF SE and recognized in
directly in equity. Gains and losses from hedges are included other operating income. In 2015, this resulted in an expense of
in cost of sales at the point in time at which the hedged item is €174 million. The ineffective part in the change in value of the
recognized in the consolidated statement of income. Unlike hedge amounted to minus €1 million in 2016 and minus
the previous year, no hedging instruments were designated in €2 million in 2015. This amount was reported in the income
2016. statement in other operating expenses and in the previous
In the previous year up to the completion of the asset year in cost of sales as well as in other operating income and
swap with Gazprom, cash flow hedge accounting was a pplied in other operating expenses.
in the Natural Gas Trading business sector for crude oil swaps BASF applied cash flow hedge accounting for derivatives
concluded in order to hedge price risks from purchase and used to hedge foreign currency risks from gas purchase and
sales contracts for natural gas. These contracts had variable sales contracts to the completion of the asset swap with
prices and the price formula was coupled with the oil price. Gazprom in 2015. In 2015 up to the completion date, the
Cash flow hedge accounting continued to be applied to a effective change in values of the hedges was minus €150 mil-
minor extent for natural gas purchases. lion, which was recognized in the equity of the shareholders of
BASF SE. There were no ineffective parts. The amounts
derecognized from the equity of shareholders of BASF SE
increased cost of sales by €161 million to the completion date
in 2015.
214 Consolidated Financial Statements BASF Report 2016
Notes — Notes on balance sheet
BASF also uses cash flow hedge accounting for some foreign hedging instruments amounted to minus €10 million and was
currency derivatives to hedge planned sales d enominated in recognized in other operating expenses.
U.S. dollars. The impact on earnings from the underlying The interest rate risk of the floating rate notes issued by
transactions will occur in 2017. In 2016, the e ffective change BASF SE in 2014 (€300 million variable-rate bond 2014/2017)
in values of the hedges was €9 million (2015: minus €23 mil- as well as the floating rate notes issued in 2013 were hedged
lion), which was recognized in the equity of the shareholders of using interest rate swaps. The bonds and the interest rate
BASF SE. A total of €11 million (2015: expense of €29 million) swaps were designated in a hedging relationship. In 2016, the
was derecognized from the equity of shareholders of BASF SE effective changes in the fair value of the hedging instruments
and was recognized in income from foreign currency and amounting to €6 million (2015: €3 million) were recognized in
hedging transactions. The hedge was entirely effective. the equity of the shareholders of BASF SE. There were no
To hedge foreign currency risk which existed for a part of ineffective parts.
the US dollar-denominated purchase price for the acquisition Furthermore, BASF SE’s fixed-rate U.S. private placement
of Chemetall, BASF used options and foreign currency forward of $1.25 billion, issued in 2013, was converted into euros
contracts in 2016. These were d esignated as hedging instru- using currency swaps. This hedge was designated as a cash
ments and led to effective changes in the amount of €97 mil- flow hedge. The hedge was entirely effective. In 2016, this
lion, which was recognized in the equity of the shareholders of resulted in changes in fair value of minus €33 million, which
BASF SE. Upon completion of the transaction in December were recognized in the equity of the shareholders of BASF SE
2016, this amount was derecognized from the equity of the (2015: €157 million). In 2016, €38 million was derecognized
shareholders of BASF SE reducing the purchase price accord- from other comprehensive income and recorded as income in
ingly and along with that the resulting goodwill arising from the the financial result (2015: €119 million income in financial
transaction. The ineffective part of the fair value changes of the result).
28 Leases
Leased assets
Property, plant and equipment include those assets which are considered to be economically owned through a finance lease.
They primarily concern the following items:
Leased assets (million €)
December 31, 2016 December 31, 2015
Acquisition cost Net book value Acquisition cost Net book value
Land, land rights and buildings 46 26 45 25
Machinery and technical equipment 136 43 117 31
Miscellaneous equipment and fixtures 59 25 44 13
Total 241 94 206 69
Liabilities from finance leases (million €)
December 31, 2016 December 31, 2015
Minimum lease Minimum lease
payments Interest portion Leasing liability payments Interest portion Leasing liability
Following year 1 28 5 23 28 5 23
Following year 2 30 4 26 21 5 16
Following year 3 19 4 15 16 3 13
Following year 4 17 3 14 11 3 8
Following year 5 12 3 9 10 3 7
More than 5 years 35 14 21 31 13 18
Total 141 33 108 117 32 85
BASF Report 2016 Consolidated Financial S
tatements 215
Notes — Other explanatory notes
In the current business year and in the previous year, no In 2016, minimum lease payments of €446 million (2015:
additional lease payments exceeding minimum lease payments €474 million) were included in income from operations. In
due to contractual conditions for finance leases were recog- 2016, conditional lease payments of €1 million (2015: €1 mil-
nized in the income statement. In 2016 and in the previous lion) were also included in income from operations. Further-
year, leasing liabilities were not offset by any significant future more, sublease payments of €4 million were included in
minimum lease payments from subleases. income from operations in 2016 (2015: €4 million).
In addition, BASF is a lessee under operating lease
contracts. The lease commitments totaling €1,513 million in BASF as lessor
2016 (2015: €1,554 million) are due in the following years:
BASF acts as a lessor for finance leases to a minor extent only.
Commitments from operating lease contracts (million €) Receivables on finance leases were €33 million in 2016 (2015:
€41 million).
Nominal value of the future In 2016, claims arising from operating leases amounted to
minimum lease payments
€89 million (2015: €83 million).
Dec. 31, 2016 Dec. 31, 2015
Less than 1 year 360 413
Future minimum lease payments to BASF from
1-5 years 757 784 operating lease contracts (million €)
More than 5 years 396 357
Total 1,513 1,554 Nominal value of the future
minimum lease payments
Dec. 31, 2016 Dec. 31, 2015
Future minimum lease payments from subleasing contracts Less than 1 year 17 17
based on existing agreements amounted to €12 million in 1-5 years 49 43
2016 (2015: €11 million). More than 5 years 23 23
Total 89 83
Other explanatory notes
29 Statement of cash flows and capital structure management
Statement of cash flows into which TODA KOGYO CORP., Hiroshima, Japan,
contributed its business with cathode materials for lithium-ion
Cash provided by operating activities contained the following batteries, patents and production capacities.
payments: Payments of €664 million were received for divestitures
(2015: €651 million) primarily from the sale of the industrial
Million € 2016 2015 coatings business to the AkzoNobel Group and from the sale
Income tax payments 1,495 1,550 of the global polyolefin catalysts business to W. R. Grace &
Interest payments 459 458 Co., Columbia, Maryland. In the previous year, payments had
Dividends received 225 219 been received from the sale of portions of the pharmaceutical
ingredients and services business to Siegfried Holding AG,
Interest payments comprised interest payments received of Zofingen, Switzerland, as well as the sale of the 50% share in
€156 million (2015: €194 million) and interest paid of Styrolution Holding GmbH, Frankfurt am Main, Germany, to
€615 million (2015: €652 million). the INEOS Group completed in 2014.
Cash provided by operating activities also included The payments made for property, plant and equipment,
€262 million in benefits paid (2015: €248 million), which are and intangible assets in the amount of €4,145 million included
covered by a contractual trust arrangement. investments for 2016, to the extent that they already had an
Cash used in investing activities included €2,828 million effect on cash.
in payments made for acquisitions (2015: €215 million), Cash and cash equivalents were not subject to any
especially for the acquisition of the global surface treatment utilization restrictions, as in the previous year.
provider Chemetall from Albemarle Corporation, Charlotte, For more information on cash flow from acquisitions and divestitures,
see Note 2.4 from page 174 onward
North Carolina. In the previous year, payments had especially
been made for the acquisition of a 66% share in a company
216 Consolidated Financial Statements BASF Report 2016
Notes — Other explanatory notes
Capital structure management Currently, BASF has the following ratings:
The aim of capital structure management is to maintain the Noncurrent Current
financial flexibility needed to further develop BASF’s business financial financial
portfolio and take advantage of strategic opportunities. The Dec. 31, 2016 indebtedness indebtedness Outlook
objectives of the Company’s financing policy are to secure Moody’s A1 P-1 stable
solvency, limit financial risks and optimize the cost of capital. Standard & Poor’s A A-1 stable
Capital structure management focuses on meeting the Scope A S-1 stable
requirements needed to ensure unrestricted access to capital
markets and a solid A rating. BASF’s capital structure is Noncurrent Current
managed using selected financial ratios, such as dynamic
financial financial
debt ratios, as part of the company’s financial planning. Dec. 31, 2015 indebtedness indebtedness Outlook
As a part of risk management, activities in countries with Moody’s A1 P-1 stable
transfer restrictions are continuously monitored. This includes, Standard & Poor’s A+ A-1 negative
for example, regular analysis of the macroeconomic and legal
environment, shareholders’ equity and the business models of Rating agency Moody’s last confirmed their rating of “A1/P-1/
the operating units. The chief aim is the reduction of counter- outlook stable” on November 28, 2016. Standard & Poor’s
party, transfer and currency risks for the BASF Group. adjusted their BASF rating from “A+/A-1/outlook negative”
The equity of the BASF Group as reported in the balance to “A/A-1/outlook stable” on March 14, 2016, and con-
sheet amounted to €32,568 million as of December 31, 2016 firmed it most recently on August 10, 2016. This a djustment
(December 31, 2015: €31,545 million); the equity ratio was was largely based on the weaker market environment,
42.6% on December 31, 2016 (December 31, 2015: 44.5%). especially for basic and agricultural chemicals, limited
BASF prefers to access external financing on the capital overall volumes growth, and the considerable drop in the
markets. A commercial paper program is used for short-term price of crude oil. Uncertainty with regard to economic
financing, while corporate bonds are used for financing in development in China was taken into c onsideration, as well.
the medium and long term. These are issued in euros and Rating agency Scope has also been evaluating BASF’s
other currencies with different maturities. The goal is to creditworthiness since September 2016. They rated BASF
create a balanced maturity profile, achieve a diverse range of at “A/S-1/outlook stable.”
investors and optimize our debt capital financing conditions. BASF continues to strive for at least a solid A rating,
which ensures unrestricted access to financial and capital
markets.
For more information on financing policy and the Statement of Cash
Flows, see the Management’s Report from page 57 onward
30 Share-price-based compensation program and BASF incentive share program
Share-price-based compensation program The threshold of right A is met if the price of the BASF share
has increased by more than 30% in comparison with the base
In 2016, BASF continued its share-price-based compensation price (absolute threshold). The value of right A will be the
program known as the long-term incentive (LTI) program for difference between the market price of BASF shares on the
senior executives of the BASF Group. This program has been exercise date and the base price; it is limited to 100% of the
in place since 1999. Approximately 1,200 senior executives, base price. Right B may be exercised if the cumulative per-
including the Board of Executive Directors, are currently centage performance of BASF shares exceeds (relative
entitled to participate in this program. This program provides threshold) the percentage performance of the MSCI World
for the granting of virtual options, which are settled in cash Chemicals IndexSM (MSCI Chemicals). The value of right B will
when exercised. be the base price of the option multiplied by twice the
Participation in the LTI program is voluntary. In order to percentage outperformance of BASF shares compared with
take part in the program, a participant must make a personal the MSCI Chemicals Index on the exercise date. It is limited to
investment: A participant must hold BASF shares amounting the closing price on the date of exercise minus the computed
to 10% to 30% of his or her individual variable compensation nominal value of BASF shares. Beginning with the 2013
for a two-year period from the granting of the option (holding LTI program, right B is only valuable if the price of BASF shares
period). The number of shares to be held is determined by the at least corresponds with the base price. The options of the
amount of variable compensation and the volume-weighted LTI program 2016 were granted on July 1, 2016, and may be
average market price for BASF shares on the first business exercised following a two-year vesting period, between
day after the Annual Shareholders’ Meeting, which was €69.93 July 1, 2018, and June 30, 2024. During the exercise period,
on May 2, 2016. there are certain times (closed periods) during which the
The participant receives four option rights per invested options may not be exercised. Each option can only be
share. Each option consists of two parts, right A and right B, exercised in full. This means that one of the performance
which may be exercised if defined thresholds have been met: targets must be surpassed. If the other performance target is
BASF Report 2016 Consolidated Financial S
tatements 217
Notes — Other explanatory notes
not surpassed and the option is exercised, the other option increased from €222 million as of December 31, 2015, to
right lapses. A participant’s maximum gain from exercising an €464 million as of December 31, 2016, due to higher fair val-
option is limited to five times the original individual investment ues of the outstanding option rights as well as due to a higher
starting with the 2013 LTI program. The maximum gain from number of outstanding options. The utilization of provisions
exercising an option is limited to ten times the original amounted to €25 million in 2016 (2015: €34 million). Expenses
individual investment for programs from previous years. Option arising from additions to the provision amounted to €267 mil-
rights are nontransferable and are forfeited if the option h
olders lion in 2016. The previous year had included an expense of
no longer work for BASF or have sold part of their individual €49 million.
investment before the expiry of the two-year vesting period. The total intrinsic value of the exercisable options
They remain valid in the case of retirement. For the members amounted to €167 million as of December 31, 2016 and
of the Board of Executive Directors, the long-term orientation €34 million as of December 31, 2015.
of the program is significantly strengthened compared with the
conditions applying to the other participants. The members of BASF incentive share program
the Board of Executive Directors are required to participate in
the LTI program with at least 10% of their gross bonus. In view All employees are entitled to participate in the “plus” incentive
of this binding personal investment (in the form of BASF share program, with the exception of those entitled to
shares), an extended holding period of four years applies. participate in the LTI program. The “plus” incentive share
Members of the Board of Executive Directors may only exer- program was introduced in 1999 and is currently offered in
cise their options at least four years after they have been Germany, other European countries and Mexico. Each
granted (vesting period). participant must make an individual investment in BASF shares
The 2009 to 2015 programs were structured in a similar from his or her variable compensation. For every ten BASF
way to the LTI program 2016. shares purchased in the program, a participant receives one
The models used in the valuation of the option plans are BASF share at no cost after one, three, five, seven and ten
based on the arbitrage-free valuation model according to years of holding the BASF shares. As a rule, the first and
Black-Scholes. The fair values of the options are determined second block of ten shares entitle the participant to receive
using the binomial model. one BASF share at no extra cost in each of the next ten years.
The right to receive free BASF shares lapses if a participant
Fair value of options and parameters used as of December 31, 2016 sells the individual investment in BASF shares, if the participant
stops working for the Company or one year after retirement.
LTI program of the year The number of free shares to be granted has developed as
2016 2015 follows:
Fair value € 46.74 38.67
Dividend yield % 3.28 3.28 Number of free shares to be granted (shares)
Risk-free interest rate % (0.11) (0.26)
Volatility BASF share % 25.03 24.69 2016 2015
Volatility MSCI Chemicals % 15.73 15.07 As of January 1 2,829,521 2,905,048
Correlation BASF share price: Newly acquired entitlements 637,610 533,825
MSCI Chemicals % 73.90 73.66 Bonus shares issued (519,984) (509,168)
Lapsed entitlements (97,424) (100,184)
The stated fair values and the valuation parameters relate to As of December 31 2,849,723 2,829,521
the LTI programs 2016 and 2015. The fair value calculation
was based on the assumption that options will be exercised in The free shares to be provided by the Company are measured
a manner dependent on their potential gains. For the programs at the fair value on the grant date. Fair value is determined on
from preceding years, corresponding fair values were com the basis of the stock price of BASF shares, taking into
puted and valuation parameters were used. account the present value of dividends, which are not paid
Volatility was determined on the basis of the monthly during the term of the program. The weighted-average fair
closing prices over a historical period corresponding to the value on the grant date amounted to €67.90 for the 2016
remaining term of the options. program, and €71.55 for the 2015 program.
The number of options granted amounted to 1,710,404 in The fair value of the free shares to be granted is recognized
2016 (2015: 1,807,532). as an expense with a corresponding increase in capital surplus
As a result of a resolution by the Board of Executive over the term of the program.
Directors in 2002 to settle options in cash, options outstanding Personnel expenses of €28 million were recorded in 2016
from the LTI programs 2009 to 2016 were valued with the fair for the BASF incentive share program “plus” and €27 million
value as of December 31, 2016. A proportionate provision is in 2015.
recorded for programs in the vesting period. The LTI provision
218 Consolidated Financial Statements BASF Report 2016
Notes — Other explanatory notes
31 Compensation for the Board of Executive Directors and Supervisory Board
Million € 2016 2015
Performance-related and not performance-related cash compensation for the
Board of Executive Directors 17.4 18.4
Fair value of options granted to the Board of Executive Directors in the fiscal year as of grant date 4.0 4.3
Total compensation for the Board of Executive Directors1 21.4 22.7
Service costs for members of the Board of Executive Directors 3.3 3.8
Compensation for the Supervisory Board 3.0 3.0
Total compensation for former members of the Board of Executive Directors
and their surviving dependents 15.9 12.1
Pension provisions for former members of the Board of Executive Directors
and their surviving dependents 150.4 144.7
Guarantees assumed for members of the Board of Executive Directors and the Supervisory Board – –
1
The compensation for Dr. Andreas Kreimeyer, who left the Board of Executive Directors on April 30, 2015, is included in the 2015 figures.
Performance-related compensation for the Board of Executive The market valuation of the options of active and former
Directors is based on the return on assets adjusted for special members of the Board resulted in expenses of €30.7 million in
items, as well as the performance of the entire Board. Return 2016. In 2015, the market valuation of the options resulted in
on assets corresponds to income before taxes and minority income of €6.6 million.
interests plus interest expenses as a percentage of average For more information on the compensation of members of the Board of
assets. Executive Directors, see the Compensation Report from page 138
onward
The members of the Board of Executive Directors were
For more information on the members of the Supervisory Board and
granted 163,764 options under the long-term incentive (LTI) Board of Executive Directors, including their memberships on other
program in 2016. boards, see page 136 onward
32 Related-party transactions
A related party is a natural person or legal entity which can Sales to related parties (million €)
exert influence on the BASF Group or over which the BASF
Group exercises control or joint control or a significant 2016 2015
influence. In particular, this comprises nonconsolidated
Nonconsolidated
subsidiaries 395 389
subsidiaries, joint ventures and associated companies.
Joint ventures 317 378
The following tables show the volume of business with
Associated companies 245 370
related parties that are included at amortized cost or a
ccounted
for using the equity method.
Trade accounts receivable from / trade accounts payable to related parties (million €)
Accounts receivable, trade Accounts payable, trade
December 31, 2016 December 31, 2015 December 31, 2016 December 31, 2015
Nonconsolidated subsidiaries 135 139 73 60
Joint ventures 76 71 92 54
Associated companies 55 34 44 44
Other receivables and liabilities with related parties (million €)
Other receivables Other liabilities
December 31, 2016 December 31, 2015 December 31, 2016 December 31, 2015
Nonconsolidated subsidiaries 176 161 178 180
Joint ventures 196 229 97 120
Associated companies 390 517 258 203
BASF Report 2016 Consolidated Financial S
tatements 219
Notes — Other explanatory notes
Sales and trade accounts receivable from and trade accounts Obligations arising from purchase contracts with associated
payable to related parties mainly included business with own companies amounted to €26 million as of December 31, 2016
products and merchandise, agency and licensing businesses, and €29 million as of December 31, 2015.
and other operating business. Effective December 31, 2016, the present value of the
Other receivables and liabilities primarily arose from outstanding minimum rental payments for an office building
financing activities, outstanding dividend payments, profit-
including parking area payable by BASF SE to BASF Pen
and-loss transfer agreements, and other finance-related and sionskasse VVaG for the nonterminable basic rental period to
operating activities and events. 2029 amounted to €57 million.
The decline of €127 million in other receivables from There were no reportable related party transactions with
associated companies in 2016 was largely due to the repay- members of the Board of Executive Directors or the Super
ment of long-term loans. visory Board and their related parties in 2016.
The outstanding balances toward related parties were For more information on subsidiaries, joint ventures and associated
generally not secured and settled in cash. As in the previous companies, see the List of Shares Held of the BASF Group 2016 on
page 178
year, there were no significant valuation allowances in 2016 for
For more information on other financial obligations in favor of joint
trade accounts receivable from related parties. The balance of entures, see Note 25: Other financial obligations from page 206 onward
v
valuation allowances for other receivables from nonconsoli For more information on defined benefit plans that share risks between
dated subsidiaries rose from €39 million as of Decem- the Group companies (including nonconsolidated subsidiaries), see
Note 22: Provisions for pensions and similar obligations from page 198
ber 31, 2015, to €79 million as of December 31, 2016. onward
Thereof €26 million in 2016 was recognized as an expense For more information on the Board of Executive Directors and the
(2015: €17 million). Supervisory Board, see Management and Supervisory Boards and
Compensation Report from page 136 onward
There were obligations from guarantees and other
financial obligations at BASF in favor of nonconsolidated
subsidiaries in the amount of €3 million on Decem-
ber 31, 2016 (December 31, 2015: €45 million) and in favor of
associated companies in the amount of €21 million in 2016
(December 31, 2015: €37 million).
33 Services provided by the external auditor
BASF Group companies have used the following services from KPMG:
Million € 2016 2015
Annual audit 17.5 21.0
Thereof domestic 6.4 7.2
Audit-related services 0.6 0.4
Thereof domestic 0.3 0.2
Tax consultation services 0.1 0.1
Thereof domestic – –
Other services 0.3 0.7
Thereof domestic 0.3 0.7
Total 18.5 22.2
The line item annual audit related to expenses for the audit of and its consolidated subsidiary companies and joint
the Consolidated Financial Statements of the BASF Group as operations.
well as the legally required financial statements of BASF SE
220 Consolidated Financial Statements BASF Report 2016
Notes — Other explanatory notes
34 Declaration of Conformity with the German Corporate Governance Code
Declaration pursuant to Section 161 AktG Stock Corporation Act was signed by the Board of Executive
(Stock Corporation Act) Directors and the Supervisory Board of BASF SE in December
2016, and is published online.
The annual Declaration of Conformity with the German For more information, see basf.com/en/governance
Governance Code according to Section 161 of the German
35 Nonadjusting events after the reporting period
Effective January 1, 2017, BASF took over the western Euro- On February 7, 2017, BASF acquired the private company
pean Construction Chemicals business from the Henkel Group Rolic AG headquartered in Allschwil, Switzerland. The com
with the trade names Thomsit® and Ceresit® for floor and pany develops and sells ready-to-use formulations and
tile-laying systems as well as sealants for professional users. functional film products for the display and security industry
This will strengthen BASF’s portfolio in the construction chem- against forgery as well as barrier materials and films. With the
icals business of the PCI Group, which belongs to the Con- acquisition, BASF broadens its technology know-how and
struction Chemicals division. The initial accounting for the product portfolio of display materials. The largest part of the
business combination will take place within a measurement activities will be integrated in the Dispersions Pigments division
period of one year. and a smaller part in the Coatings division.
5
To Our Shareholders 5
Management’s Report 17
Corporate Governance 125
Consolidated Financial Statements 151
Supplementary Information
on the Oil & Gas Segment
Overviews 231
Supplementary information
on the Oil & Gas segment 223
Oil & Gas
BASF Report 2016 Supplementary Information on the Oil & Gas Segment 223
Supplementary Information on the Oil & Gas Segment
(Unaudited)
The following provides supplementary information on the The regions include the following countries with operating
Exploration & Production business sector of the Oil & Gas activities:
segment. In the absence of detailed disclosure rules in this
area under the International Financial Reporting Standards Exploration &
(IFRS), the presentation is based on the FASB standard Region Production Exploration
Extractive Activities – Oil and Gas (Topic 932), which is a fur- Rest of Europe United Kingdom, Denmark
ther development of SFAS 69. In the following sections, the the Netherlands,
Norway
determination of the amounts complies with the metrics set
North Africa / Middle East Libya Abu Dhabi
out by IFRS that underlie the BASF Group Consolidated Finan
South America Argentina
cial Statements: Operating income from oil and gas-producing
activities; Period expenditures for a cquisition, exploration and
development of oil and gas d eposits; Capitalized costs relating
to oil and gas producing activities; and Capitalized exploration Oil and gas reserves
drilling: suspended well costs. The definition of companies
accounted for using the equity method also follows the Proven oil and gas reserves are the volumes of crude oil,
approach of the Consolidated Financial Statements. These natural gas and condensate that, according to the geological,
changes were introduced in 2016 to improve comparability engineering and economic conditions prevailing at the balance
between the Supplementary Information on the Oil & Gas
sheet date, can be produced in future years. Accordingly,
Segment and the BASF Group Consolidated Financial State- reserve estimates based on this data could be materially dif
ments. The amounts for 2015 have been restated accordingly. ferent from the volumes that are ultimately recovered. To
The cash flow from the Yuzhno Russkoye project is shown in reduce uncertainties, BASF works together with independent,
the fully consolidated company responsible for marketing the internationally recognized reserve auditors to perform recur-
gas. ring reserves audits of its major crude oil and natural gas fields.
According to Topic 932, the current economic conditions The tables on the following pages show the company’s
were considered in the determination of oil and gas reserves estimated proven and proven developed reserves as of
as well as the standardized calculation of discounted net cash December 31, 2015, and 2016, as well as changes attribut-
flows. The prices used are valued at the average price calcu- able to production or other factors.
lated from the prices on the first day of the month for the past
12 months. Expected proven reserves and the resulting future
net cash flows can vary significantly from the current estimates.
Furthermore, the realized prices and costs and the actual cash
flows resulting therefrom may differ from the estimate in
amount and distribution over time. Therefore, the values pre-
sented should not be interpreted as a prediction of future cash
flows, nor in their sum as the current value of the company.
Furthermore, different prices, costs and volume estimates
are used for operative decisions as well as for the preparation
of the Consolidated Financial Statements. Therefore, the
reserves and net cash flows shown are not comparable with
statements and values in the Consolidated Financial State-
ments.
According to the requirements in Topic 932, regions with
more than a 15% share of total reserves must be shown sep-
arately. Therefore, the regions in the supplementary informa-
tion differ from those presented in the Group Consolidated
Financial Statements. Aside from the countries Germany and
Russia, this includes the regions: Rest of Europe; North Africa/
Middle East; as well as South America.
224 Supplementary Information on the Oil & Gas Segment BASF Report 2016
Oil 2016
Rest of North Africa, South Total Thereof
Consolidated and equity-accounted companies Germany Europe Russia Middle East America Group at equity
Proven developed and undeveloped
oil reserves as of January 1,
in million barrels (MMbbl) 42 144 193 96 9 484 96
Revisions and other changes – 5 6 (7) – 4 (3)
Extensions and discoveries – – – – – – –
Purchase/sale of reserves – – – – – – –
Production 6 22 15 3 2 48 4
Proven reserves as of December 31 36 127 184 86 7 440 89
Thereof equity-accounted companies – 1 6 82 – 89 89
Proven developed reserves as of December 31 32 60 144 77 7 320 80
Thereof equity-accounted companies – – 6 74 – 80 80
Gas 2016
Rest of North Africa, South Total Thereof
Consolidated and equity-accounted companies Germany Europe Russia Middle East America Group at equity
Developed and undeveloped gas reserves
as of January 1, in million barrels of oil equivalent
(MMBOE) 24 118 940 11 167 1,260 572
Revisions and other changes 3 8 19 (2) 11 39 6
Extensions and discoveries – – – – – – –
Purchase/sale of reserves – – – – – – –
Production 4 15 74 – 24 117 58
Proven reserves as of December 31 23 111 885 9 154 1,182 520
Thereof equity-accounted companies – 6 505 9 – 520 520
Proven developed reserves as of December 31 23 50 628 8 147 856 360
Thereof equity-accounted companies – 6 346 8 – 360 360
BASF Report 2016 Supplementary Information on the Oil & Gas Segment 225
Oil 2015
Rest of North Africa, South Total Thereof
Consolidated and equity-accounted companies Germany Europe Russia Middle East America Group at equity
Proven developed and undeveloped
oil reserves as of January 1,
in million barrels (MMbbl) 53 78 183 103 10 427 102
Revisions and other changes (5) 17 23 (3) 1 33 (3)
Extensions and discoveries – 65 – – – 65 1
Purchase/sale of reserves – – – – – – –
Production 6 16 13 4 2 41 4
Proven reserves as of December 31 42 144 193 96 9 484 96
Thereof equity-accounted companies – 1 4 91 – 96 96
Proven developed reserves as of December 31 36 62 141 83 8 330 83
Thereof equity-accounted companies – – 4 79 – 83 83
Gas 2015
Rest of North Africa, South Total Thereof
Consolidated and equity-accounted companies Germany Europe Russia Middle East America Group at equity
Developed and undeveloped gas reserves
as of January 1, in million barrels of oil equivalent
(MMBOE) 27 119 966 11 158 1,281 629
Revisions and other changes 1 18 43 – 31 93 12
Extensions and discoveries – 6 – – – 6 –
Purchase/sale of reserves – (8) – – – (8) (8)
Production 4 17 69 – 22 112 61
Proven reserves as of December 31 24 118 940 11 167 1,260 572
Thereof equity-accounted companies – 9 552 11 – 572 572
Proven developed reserves as of December 31 18 49 669 9 127 872 416
Thereof equity-accounted companies – 9 398 9 – 416 416
226 Supplementary Information on the Oil & Gas Segment BASF Report 2016
Operating income from oil and gas-producing figures shown for the Oil & Gas segment. Significant deviations
activities exist in sales revenues that do not include sales from mer-
chandise and services as well as the financing and corporate
Operating income represents only those revenues and overhead costs not included there. Income taxes were com-
expenses directly associated with oil, condensate and gas puted using currently applicable local income tax rates.
production. This partially results in significant differences to the
2016 (million €)
Rest of North Africa, South Total
Fully consolidated companies Germany Europe Russia Middle East America Group
Sales crude oil (including condensate and LPG) 202 680 74 56 94 1,106
Sales natural gas 75 291 166 – 413 945
Local duties (royalties, export, etc.) 40 – – – 91 131
Net revenue (less duties) 237 971 240 56 416 1,920
Production costs 108 264 33 13 145 563
Exploration expenses and technology 5 81 9 20 15 130
Depreciation, amortization and impairment 109 692 14 12 137 964
Other 4 43 18 6 (120) (49)
Operating income before taxes 11 (109) 166 5 239 312
Income taxes 3 3 25 23 85 139
Operating income after taxes 8 (112) 141 (18) 154 173
Net income of equity-accounted companies – (63) 77 (40) – (26)
2015 (million €)
Rest of North Africa, South Total
Fully consolidated companies Germany Europe Russia Middle East America Group
Sales crude oil (including condensate and LPG) 250 573 105 86 115 1,129
Sales natural gas 100 574 387 – 322 1,383
Local duties (royalties, export, etc.) 55 2 – – 87 144
Net revenue (less duties) 295 1,145 492 86 350 2,368
Production costs 122 338 23 18 127 628
Exploration expenses and technology 8 192 1 37 16 254
Depreciation, amortization and impairment 99 984 13 107 72 1,275
Other 10 (313) 16 3 (98) (382)
Operating income before taxes 56 (56) 439 (79) 233 593
Income taxes 16 17 79 27 83 222
Operating income after taxes 40 (73) 360 (106) 150 371
Net income of equity-accounted companies – (3) 89 5 – 91
BASF Report 2016 Supplementary Information on the Oil & Gas Segment 227
Period expenditures for acquisition, exploration and development of oil and gas deposits
Period expenditures include all amounts incurred in connection with the acquisition, exploration or development of oil and gas
deposits, regardless of whether these were capitalized or expensed.
2016 (million €)
Rest of North Africa, South Total
Fully consolidated companies Germany Europe Russia Middle East America Group
Acquisition expenditures – – – – 8 8
For proven reserves – – – – – –
For unproven reserves – – – – 8 8
Exploration and technology expenditures 15 111 9 29 20 184
Development expenditures 66 629 73 1 194 963
Total expenditures 81 740 82 30 222 1,155
Total expenditures at equity-accounted companies – 87 19 – – 106
2015 (million €)
Rest of North Africa, South Total
Fully consolidated companies Germany Europe Russia Middle East America Group
Acquisition expenditures – 41 – – – 41
For proven reserves – 41 – – – 41
For unproven reserves – – – – – –
Exploration and technology expenditures 12 190 1 54 79 336
Development expenditures 59 735 115 – 330 1,239
Total expenditures 71 966 116 54 409 1,616
Total expenditures at equity-accounted companies – 217 822 8 – 1,047
Capitalized costs relating to oil and gas producing activities
Capitalized costs represent total expenditures on proven and unproven oil and gas deposits including the related accumulated
depreciation and amortization.
2016 (million €)
Rest of North Africa, South Total
Fully consolidated companies Germany Europe Russia Middle East America Group
Proven oil and gas reserves 978 6,023 1,577 156 1,733 10,467
Unproven oil and gas reserves 45 525 – 126 297 993
Equipment and miscellaneous 858 47 – – – 905
Total gross assets 1,881 6,595 1,577 282 2,030 12,365
Accumulated depreciation, amortization and impairments (1,335) (2,429) (364) (209) (1,044) (5,381)
Total net assets 546 4,166 1,213 73 986 6,984
Investments in equity-accounted companies – 228 1,197 93 – 1,518
2015 (million €)
Rest of North Africa, South Total
Fully consolidated companies Germany Europe Russia Middle East America Group
Proven oil and gas reserves 939 5,285 1,149 152 1,556 9,081
Unproven oil and gas reserves 52 435 – 114 267 868
Equipment and miscellaneous 800 74 – – – 874
Total gross assets 1,791 5,794 1,149 266 1,823 10,823
Accumulated depreciation, amortization and impairments (1,280) (1,646) (265) (190) (910) (4,291)
Total net assets 511 4,148 884 76 913 6,532
Investments in equity-accounted companies – 291 1,115 133 – 1,539
228 Supplementary Information on the Oil & Gas Segment BASF Report 2016
Capitalized exploration drilling: The following table provides an overview of the capitalization
Suspended well costs period, amounts capitalized for exploration drilling, and the
number of suspended exploration wells.
Exploratory drilling costs are capitalized until the drilling of the
well is complete. If hydrocarbon resources are found whose Capitalized exploration drilling (million €)
commercial development is likely, the costs continue to be
capitalized as construction in progress, subject to further Fully consolidated companies 2016 2015
appraisal activity that may include the drilling of further wells. Wells for which drilling is not complete 37 20
Management evaluates all such capitalized costs at least once Wells capitalized less than one year 71 152
a year from both a technical and economic perspective to Wells capitalized more than one year 303 251
confirm the continued intent to develop or otherwise extract Total 411 423
value from the discovery. If this is no longer the case, the rele- Number of exploration wells in
construction in progress 36 45
vant costs are written off. If proven reserves of oil or natural
Number of exploration wells in construction in
gas are determined and development is sanctioned, however, progress at equity-accounted companies
the relevant expenses are transferred within property, plant as of December 31 27 29
and equipment to machinery and technical equipment. Impair-
ments for unsuccessful exploration wells are recognized in
exploration expenses. Standardized measure of discounted future
The following table indicates the changes to the capitalized net cash flows relating to proven oil and gas
costs of exploration drilling. The determination of the amounts reserves
as well as the activities included were adjusted to the BASF
Group Consolidated Financial Statements in 2016. The The following information was determined based on the regu-
amounts for 2015 were accordingly restated. lations on Extractive Activities – Oil and Gas (Topic 932) pub-
The last row shows the year-end value for equity- lished by FASB. Based on this, a standardized measure of
accounted companies. discounted future net cash flows with the relevant revenues,
costs and income tax rates is to be made. The proven reserves
Capitalized exploration drilling (million €) are valued at the average price calculated from the prices on
the first day of the month for the past business year. The val-
Fully consolidated companies 2016 2015 ues thus determined are discounted at a 10% annual discount
As of January 1 423 479 rate.
Additions to exploration drilling of the year 103 310
Capitalized exploration drilling charged to expense (49) (136)
Reclassification of successful exploration drilling (75) (105)
Changes in scope of consolidation – (150)
Translation effect 9 25
As of December 31 411 423
Equity-accounted companies as of
December 31 212 181
BASF Report 2016 Supplementary Information on the Oil & Gas Segment 229
Standardized measure of discounted future net cash flows 2016 (million €)
Consolidated and equity-accounted Rest of North Africa, South Total Thereof
companies Germany Europe Russia Middle East America Group at equity
Future revenues 1,365 6,975 5,732 3,478 3,428 20,978 3,610
Future production/development costs 1,549 5,264 1,633 1,378 1,203 11,027 1,582
Future income taxes (120) 164 690 1,937 570 3,241 1,933
Future net cash flows, not discounted (64) 1,547 3,409 163 1,655 6,710 95
10% discount rate (132) 527 1,278 59 508 2,240 13
Standardized measure of discounted
future net cash flows 68 1,020 2,131 104 1,147 4,470 82
Thereof equity-accounted companies – (42) 25 99 – 82 82
Standardized measure of discounted future net cash flows 2015 (million €)
Consolidated and equity-accounted Rest of North Africa, South Total Thereof
companies Germany Europe Russia Middle East America Group at equity
Future revenues 1,861 10,154 7,992 4,245 4,051 28,303 4,526
Future production/development costs 1,761 6,593 1,766 1,304 1,359 12,783 1,618
Future income taxes (60) 1,413 1,092 2,494 702 5,641 2,458
Future net cash flows, not discounted 160 2,148 5,134 447 1,990 9,879 450
10% discount rate (49) 743 2,109 143 639 3,585 104
Standardized measure of discounted
future net cash flows 209 1,405 3,025 304 1,351 6,294 346
Thereof equity-accounted companies – 28 53 265 – 346 346
230 Supplementary Information on the Oil & Gas Segment BASF Report 2016
Summary of changes in standardized measure of discounted future net cash flows 2016 (million €)
Consolidated companies and equity-accounted Rest of North Africa, South Total Thereof
companies Germany Europe Russia Middle East America Group at equity
As of January 1 209 1,405 3,025 304 1,351 6,294 346
Sales of oil and gas produced, net of production
costs in the current period (130) (747) (380) (97) (280) (1,634) (105)
Net changes in prices and production costs at
balance sheet date (186) (1,416) (1,292) (482) (242) (3,618) (572)
Net changes from extensions, discoveries and
improved recovery, less related costs – – – – – – –
Revisions of previous reserves estimates 30 283 68 (175) 78 284 (172)
Investments in the period 67 702 87 – 144 1,000 79
Changes in estimated investments in future periods 2 (39) 63 24 (182) (132) (27)
Purchase/sale of reserves – – – – – – –
Net change in income taxes 59 625 212 347 116 1,359 351
Accretion of discount 17 207 348 183 171 926 182
Other – – – – (9) (9) –
Standardized measure of discounted future net
cash flows as of December 31 68 1,020 2,131 104 1,147 4,470 82
Thereof equity-accounted companies – (42) 25 99 – 82 82
Summary of changes in standardized measure of discounted future net cash flows 2015 (million €)
Consolidated companies and equity-accounted Rest of North Africa, South Total Thereof
companies Germany Europe Russia Middle East America Group at equity
As of January 1 734 1,338 4,355 923 678 8,028 794
Sales of oil and gas produced, net of production
costs in the current period (174) (835) (631) (98) (222) (1,960) (185)
Net changes in prices and production costs at
balance sheet date (730) (1,726) (2,132) (2,111) 730 (5,969) (2,167)
Net changes from extensions, discoveries and
improved recovery, less related costs – 50 – – – 50 (17)
Revisions of previous reserves estimates 43 539 197 (55) 278 1,002 126
Investments in the period 72 898 133 8 289 1,400 171
Changes in estimated investments in future periods (26) (603) 313 20 (226) (522) (87)
Purchase/sale of reserves – (32) – – – (32) (28)
Net change in income taxes 206 1,464 295 1,288 (262) 2,991 1,435
Accretion of discount 84 312 495 329 86 1,306 304
Other – – – – – – –
Standardized measure of discounted future net
cash flows as of December 31 209 1,405 3,025 304 1,351 6,294 346
Thereof equity-accounted companies – 28 53 265 – 346 346
6
To Our Shareholders 5
Management’s Report 17
Corporate Governance 125
Consolidated Financial Statements 151
Supplementary Information on the Oil & Gas Segment 221
Overviews
Ten-year summary 233
Trademarks 235
Glossary 236
Overviews
BASF Report 2016 Overviews 233
Ten-year summary
Ten-year summary
Million € 2007 2008 2009 2010 2011 20121 20132 2014 2015 2016
Sales and earnings
Sales 57,951 62,304 50,693 63,873 73,497 72,129 73,973 74,326 70,449 57,550
Income from operations (EBIT) 7,316 6,463 3,677 7,761 8,586 6,742 7,160 7,626 6,248 6,275
Income before taxes 6,935 5,976 3,079 7,373 8,970 5,977 6,600 7,203 5,548 5,395
Income before minority interests 4,325 3,305 1,655 5,074 6,603 5,067 5,113 5,492 4,301 4,255
Net income 4,065 2,912 1,410 4,557 6,188 4,819 4,792 5,155 3,987 4,056
Income from operations before
depreciation and amortization (EBITDA) 10,225 9,562 7,388 11,131 11,993 10,009 10,432 11,043 10,649 10,526
EBIT before special items 7,614 6,856 4,852 8,138 8,447 6,647 7,077 7,357 6,739 6,309
EBIT after cost of capital 2,895 1,621 (226) 3,500 2,551 1,164 1,768 1,368 194 1,136
Capital expenditures,
depreciation and amortization
Additions to property, plant and
equipment and intangible assets 4,425 3,634 5,972 5,304 3,646 5,263 7,726 7,285 6,013 7,258
Thereof property, plant and
equipment 2,564 2,809 4,126 3,294 3,199 4,084 6,428 6,369 5,742 4,377
Depreciation and amortization of property,
plant and equipment and intangible assets 2,909 3,099 3,711 3,370 3,407 3,267 3,272 3,417 4,401 4,251
Thereof property, plant and
equipment 2,294 2,481 2,614 2,667 2,618 2,594 2,631 2,770 3,600 3,691
Number of employees
At year-end 95,175 96,924 104,779 109,140 111,141 110,782 112,206 113,292 112,435 113,830
Annual average 94,893 95,885 103,612 104,043 110,403 109,969 111,844 112,644 113,249 111,975
Personnel expenses 6,648 6,364 7,107 8,228 8,576 8,963 9,285 9,224 9,982 10,165
Research and development
expenses 1,380 1,355 1,398 1,492 1,605 1,732 1,849 1,884 1,953 1,863
Key data
Earnings per share3 € 4.16 3.13 1.54 4.96 6.74 5.25 5.22 5.61 4.34 4.42
Cash provided by operating
activities4 5,807 5,023 5,693 6,460 7,105 6,602 8,100 6,958 9,446 7,717
EBITDA margin % 17.6 15.3 14.6 17.4 16.3 13.9 14.1 14.9 15.1 18.3
Return on assets % 16.4 13.5 7.5 14.7 16.1 11.0 11.5 11.7 8.7 8.2
Return on equity after tax % 22.4 17.0 8.9 24.6 27.5 19.9 19.2 19.7 14.4 13.3
Appropriation of profits
Net income of BASF SE5 2,267 2,982 2,176 3,737 3,506 2,880 2,826 5,853 2,158 2,808
Dividend 1,831 1,791 1,561 2,021 2,296 2,388 2,480 2,572 2,664 2,755
Dividend per share3 € 1.95 1.95 1.70 2.20 2.50 2.60 2.70 2.80 2.90 3.00
Number of shares
as of December 313, 6 million 956.4 918.5 918.5 918.5 918.5 918.5 918.5 918.5 918.5 918.5
1
We have applied International Reporting Standards IFRS 10 and 11 as well as International Accounting Standard 19 (revised) since January 1, 2013.
Figures for 2012 have been restated; no restatement was made for 2011 and earlier.
2
Figures for 2013 have been adjusted to reflect the dissolution of the natural gas trading business disposal group.
3
We conducted a two-for-one stock split in the second quarter of 2008. The previous year’s figures for earnings per share, dividend per share and number of shares
have been adjusted accordingly for purposes of comparison.
4
Includes the change in reporting from 2009 onward of the effects of regular extensions of U.S. dollar hedging transactions
5
Calculated in accordance with German GAAP
6
After deduction of repurchased shares earmarked for cancellation
234 Overviews BASF Report 2016
Ten-year summary
Balance sheet (IFRS)
Million € 2007 2008 2009 2010 2011 20121 20132 2014 2015 2016
Intangible assets 9,559 9,889 10,449 12,245 11,919 12,193 12,324 12,967 12,537 15,162
Property, plant and equipment 14,215 15,032 16,285 17,241 17,966 16,610 19,229 23,496 25,260 26,413
Investments accounted for using
the equity method 834 1,146 1,340 1,328 1,852 3,459 4,174 3,245 4,436 4,647
Other financial assets 1,952 1,947 1,619 1,953 848 613 643 540 526 605
Deferred taxes 679 930 1,042 1,112 941 1,473 1,006 2,193 1,791 2,513
Other receivables and miscellaneous
noncurrent assets 655 642 946 653 561 911 877 1,498 1,720 1,210
Noncurrent assets 27,894 29,586 31,681 34,532 34,087 35,259 38,253 43,939 46,270 50,550
Inventories 6,578 6,763 6,776 8,688 10,059 9,581 10,160 11,266 9,693 10,005
Accounts receivable, trade 8,561 7,752 7,738 10,167 10,886 9,506 10,233 10,385 9,516 10,952
Other receivables and miscellaneous
current assets 2,337 3,948 3,223 3,883 3,781 3,455 3,714 4,032 3,095 3,078
Marketable securities 51 35 15 16 19 14 17 19 21 536
Cash and cash equivalents 767 2,776 1,835 1,493 2,048 1,647 1,827 1,718 2,241 1,375
Assets of disposal groups 614 – – 614 295 3,264 – − − −
Current assets 18,908 21,274 19,587 24,861 27,088 27,467 25,951 27,420 24,566 25,946
Total assets 46,802 50,860 51,268 59,393 61,175 62,726 64,204 71,359 70,836 76,496
Subscribed capital 1,224 1,176 1,176 1,176 1,176 1,176 1,176 1,176 1,176 1,176
Capital surplus 3,173 3,241 3,229 3,216 3,203 3,188 3,165 3,143 3,141 3,130
Retained earnings 14,556 13,250 12,916 15,817 19,446 23,708 26,102 28,777 30,120 31,515
Other comprehensive income 174 (96) 156 1,195 314 (3,461) (3,400) (5,482) (3,521) (4,014)
Minority interests 971 1,151 1,132 1,253 1,246 1,010 630 581 629 761
Equity 20,098 18,722 18,609 22,657 25,385 25,621 27,673 28,195 31,545 32,568
Provisions for pensions and similar
obligations 1,292 1,712 2,255 2,778 3,189 5,421 3,727 7,313 6,313 8,209
Other provisions 3,015 2,757 3,289 3,352 3,335 2,925 3,226 3,502 3,369 3,667
Deferred taxes 2,060 2,167 2,093 2,467 2,628 2,234 2,894 3,420 3,381 3,317
Financial indebtedness 6,954 8,290 12,444 11,670 9,019 8,704 11,151 11,839 11,123 12,545
Other liabilities 901 917 898 901 1,142 1,111 1,194 1,197 869 873
Noncurrent liabilities 14,222 15,843 20,979 21,168 19,313 20,395 22,192 27,271 25,055 28,611
Accounts payable, trade 3,763 2,734 2,786 4,738 5,121 4,502 5,153 4,861 4,020 4,610
Provisions 2,697 3,043 3,276 3,324 3,210 2,628 2,670 2,844 2,540 2,802
Tax liabilities 881 860 1,003 1,140 1,038 870 968 1,079 1,082 1,288
Financial indebtedness 3,148 6,224 2,375 3,369 3,985 4,094 3,256 3,545 4,074 3,767
Other liabilities 1,976 3,434 2,240 2,802 3,036 2,623 2,292 3,564 2,520 2,850
Liabilities of disposal groups 17 – – 195 87 1,993 – − − −
Current liabilities 12,482 16,295 11,680 15,568 16,477 16,710 14,339 15,893 14,236 15,317
Total equity and liabilities 46,802 50,860 51,268 59,393 61,175 62,726 64,204 71,359 70,836 76,496
1
We have applied International Reporting Standards IFRS 10 and 11 as well as International Accounting Standard 19 (revised) since January 1, 2013.
Figures for 2012 have been restated; no restatement was made for 2011 and earlier.
2
Figures for 2013 have been adjusted to reflect the dissolution of the natural gas trading business disposal group.
BASF Report 2016 Overviews 235
Trademarks
Trademarks1
ACRODUR® reg. trademark of BASF Group Lavergy ® reg. trademark of BASF Group
AgCelence® reg. trademark of BASF Group LIMUS® reg. trademark of BASF Group
AMASIL® reg. trademark of BASF Group LUPRO-MIX® reg. trademark of BASF Group
BASONAT® reg. trademark of BASF Group MAGLIS® reg. trademark of BASF Group
CELLASTO® reg. trademark of BASF Group natuphos® reg. trademark of BASF Group
CERESIT® reg. trademark of BASF Group NEALTA® reg. trademark of BASF Group
CLEARFIELD® reg. trademark of BASF Group NODULATOR® reg. trademark of BASF Group
CREATOR SPACE® reg. trademark of BASF Group PALATINOL® reg. trademark of BASF Group
DINCH® reg. trademark of BASF Group PALIOCROM® reg. trademark of BASF Group
ECOVIO® reg. trademark of BASF Group POLYTHF® reg. trademark of BASF Group
EMPRO® reg. trademark of BASF Group Responsible Care® reg trademark of Conseil
ENGENIA® reg. trademark of BASF Group Européen de l’Industrie Chimique
EPOTAL® reg. trademark of BASF Group REVYSOL® reg. trademark of BASF Group
ESPAÇO ECO® reg. trademark of BASF Group R-M® reg. trademark of BASF Group
F 500 ® reg. trademark of BASF Group SERIFEL® reg. trademark of BASF Group
FLO RITE® reg. trademark of BASF Group SOKALAN® reg. trademark of BASF Group
FSC® reg. trademark of Forest Sustainable Solution Steering® reg. trademark of BASF Group
Stewardship Council SYSTIVA® reg. trademark of BASF Group
Glasurit ® reg. trademark of BASF Group TERMIDOR® reg. trademark of BASF Group
GREEN SENSE® reg. trademark of BASF Group THOMSIT® reg. trademark of BASF Group
HEXAMOLL® reg. trademark of BASF Group TINUVIN® reg. trademark of BASF Group
HYDROBLUE® reg. trademark of BASF Group TRILON® reg. trademark of BASF Group
INITIUM® reg. trademark of BASF Group ULTRADUR® reg. trademark of BASF Group
INSCALIS® reg. trademark of BASF Group ULTRAFORM® reg. trademark of BASF Group
INTEGRAL® reg. trademark of BASF Group ULTRAMID® reg. trademark of BASF Group
INTERCEPTOR® reg. trademark of BASF Group ULTRASON® reg. trademark of BASF Group
JONCRYL® reg. trademark of BASF Group VIZURA® reg. trademark of BASF Group
KEROPUR® reg. trademark of BASF Group VAULT® reg. trademark of BASF Group
KIXOR® reg. trademark of BASF Group XEMIUM® reg. trademark of BASF Group
LAROMER® reg. trademark of BASF Group
1
Trademarks are not registered in all countries.
236 Overviews BASF Report 2016
Glossary
Glossary
A Compliance
Compliance is an important element of corporate governance. It
Associated companies refers to the company’s behavior in accordance with laws, guide-
Associated companies are entities in which significant influence can lines and voluntary codices.
be exercised over their operating and financial policies and which
are not subsidiaries, joint ventures or joint operations. In general, this
D
applies to companies in which BASF has an investment of between
20% and 50%.
Dodd-Frank Act
The Dodd-Frank Act issued in 2010 comprises accounting and
Audits
disclosure obligations for publicly listed U.S. companies regarding
Audits are a strategic tool for monitoring and directing standards.
the use of certain raw materials that come from the Democratic
During a site or plant audit, clearly defined criteria are used to create
Republic of the Congo or its bordering countries. The companies
a profile on topics such as environment, safety or health.
must prove that the materials they use do not come from mines in
these conflict areas. The definition of conflict minerals as per the
B Dodd-Frank Act includes the following materials and their deriva-
tives: Columbitetantalite (coltan), cassiterite, wolframite and gold.
Backup line
A backup line is a confirmed line of credit that can be drawn upon in
E
connection with the issue of commercial paper if market liquidity is
not sufficient, or for the purpose of general corporate financing. It
EBIT
is one of the instruments BASF uses to ensure it is able to make
Earnings before interest and taxes (EBIT): At BASF, EBIT corre-
payments at all times.
sponds to income from operations.
Barrel of oil equivalent (BOE)
EBIT after cost of capital
A barrel of oil equivalent (BOE) is an international unit of measure-
EBIT after cost of capital is calculated by deducting the cost of
ment for comparing the energy content of different fuels. It is equal
capital from the EBIT of the operating divisions. The cost of capital
to one barrel of crude oil, or 6,000 cubic feet (169 cubic meters) of
thereby reflects the shareholders’ expectations regarding return (in
natural gas.
the form of dividends or share price increases) and interest payable
to creditors. If the EBIT after cost of capital has a positive value, we
Biotechnology
have earned a premium on our cost of capital.
Biotechnology includes all processes and products that make use of
living organisms, such as bacteria and yeasts, or their cellular con-
EBITDA
stituents.
Earnings before interest, taxes, depreciation and amortization
(EBITDA): At BASF, EBITDA corresponds to income from operations
BDO
before depreciation and amortization (impairments and write-ups).
BDO stands for 1,4-Butanediol and is a BASF intermediate. BDO
and its derivatives are used for producing plastics, solvents, elec-
EBITDA margin
tronic chemicals and elastic fibers.
The EBITDA margin is the margin that we earn on sales from our
operating activities before depreciation and amortization. It is
C calculated as income from operations before depreciation and
amortization as a percentage of sales.
CDP
The international nonprofit organization CDP (formerly the Carbon Eco-Efficiency Analysis
Disclosure Project) analyzes environmental data of companies. The The Eco-Efficiency Analysis is a method developed by BASF for
CDP’s indexes serve as assessment tools for investors. assessing the economic and environmental aspects of products and
processes. The aim is to compare products with regard to profit-
CO2 equivalents ability and environmental compatibility.
CO2 equivalents are units for measuring the impact of greenhouse
gas emissions on the greenhouse effect. A factor known as the Enhanced oil recovery (EOR)
global warming potential (GWP) shows the impact of the individual Enhanced oil recovery (EOR) methods, also called tertiary recovery
gases compared with CO2 as the reference value. or tertiary production methods, are used to increase the recovery
factor from oil reservoirs. Different technologies are employed
Commercial paper program depending on reservoir conditions; a distinction is generally made
The commercial paper program is a framework agreement between between thermal and chemical EOR and miscible gas flooding,
BASF and banks regarding the issuing of debt obligations on the which makes use of gases such as carbon dioxide.
financial market (commercial paper). The commercial paper is issued
under a rolling program for which the terms can be determined indi-
vidually. This requires a good rating.
BASF Report 2016 Overviews 237
Glossary
Equity method Global Reporting Initiative (GRI)
The equity method is used to account for shareholdings in joint The Global Reporting Initiative is a multistakeholder organization. It
ventures and associated companies. Based on the acquisition costs was established in 1997 with the aim of developing a guideline for
of the shareholding as of the acquisition date, the carrying amount is companies’ and organizations’ voluntary reporting on their eco
continuously adjusted to the changes in equity of the company in nomic, environmental and social activities.
which the share is held.
Greenhouse Gas Protocol (GHG Protocol)
European Water Stewardship (EWS) Standard The Greenhouse Gas Protocol, used by many companies in different
The European Water Stewardship (EWS) Standard enables busi- sectors as well as nongovernmental organizations and govern-
nesses and agriculture to assess the sustainability of their water ments, is a globally recognized standard to quantify and manage
management practices. The criteria are water abstraction volumes, greenhouse gas emissions. The reporting standards and recom-
water quality, conservation of biodiversity and water governance. mendations for implementing projects to reduce emissions are
The Europe-wide standard came into force at the end of 2011 and jointly developed by companies, nongovernmental organizations
was developed by nongovernmental organizations, governments and governments under the guidance of the World Resources Insti-
and businesses under the direction of the independent organization tute and the World Business Council for Sustainable Development.
European Water Partnership (EWP).
H
Exploration
Exploration refers to the search for mineral resources, such as crude
oil or natural gas, in the Earth’s crust. The exploration process Health Performance Index (HPI)
involves using suitable geophysical methods to find structures that The Health Performance Index is an indicator developed by BASF to
may contain oil and gas, then proving a possible discovery by means provide more detailed insight into our approach to health manage-
of exploratory drilling. ment. It comprises five components: confirmed occupational
diseases, medical emergency drills, first aid, preventive medicine
and health promotion.
F
I
Field development
Field development is the term for the installation of production
facilities and the drilling of production wells for the commercial IAS
exploitation of oil and natural gas deposits. IAS stands for International Accounting Standards (see also IFRS).
Formulation IFRS
Formulation describes the combination of one or more active The International Financial Reporting Standards (until 2001: Interna-
substances with excipients like emulsifiers, stabilizers and other
tional Accounting Standards, IAS) are developed and published
inactive components in order to improve the applicability and effec- by the International Accounting Standards Board, headquartered
tiveness of various products, such as cosmetics, pharmaceuticals, in London, England. The “IAS Regulation” made the application of
agricultural chemicals, paints and coatings. IFRSs mandatory for listed companies headquartered in the
European Union starting in 2005.
Free cash flow
Free cash flow is cash provided by operating activities less pay- ILO Core Labor Standards
ments made for property, plant and equipment and intangible The ILO Core Labor Standards are set out in a declaration of the
assets. International Labor Organization (ILO), comprising eight conventions
that set minimum requirements for decent working conditions.
G ISO 14001
ISO 14001 is an international standard developed by the I nternational
Global Compact Organization for Standardization (ISO) that determines the general
In the United Nations Global Compact network, nongovernmental requirements for an environmental management system for volun-
organizations, companies, international business and employee tary certification.
representatives, scientists and politicians work on aligning global
business with the principles of sustainable development. ISO 19011
ISO 19011 is an international standard developed by the I nternational
Global Product Strategy (GPS) Organization for Standardization (ISO) that determines requirements
The Global Product Strategy aims to establish global product for audits of quality management and environmental management
stewardship standards and practices for companies. The program, systems.
initiated by the International Council of Chemical Associations,
strives to ensure the safe handling of chemicals by reducing existing
differences in risk assessment.
238 Overviews BASF Report 2016
Glossary
ISO 50001 Million British thermal unit (mmBtu)
ISO 50001 is an international standard developed by the I nternational The British thermal unit (Btu) is a unit of energy observed in
Organization for Standardization (ISO) that determines the general the Anglo-American measuring system. It is used for indicating
requirements for an energy management system for voluntary certi- values such as the energy content of gas. One mmBtu (million
fication. British thermal units) is equal to approximately 1,003 cubic feet of
gas or 28 cubic meters of gas.
J
Monitoring system
Monitoring systems and tools serve to measure and ensure the
Joint arrangement adherence to standards. One area that is monitored is our voluntary
A joint arrangement refers to joint ventures and joint operations, and commitments, such as the adherence to human rights and interna-
describes a jointly controlled arrangement of two or more parties. tionally recognized labor standards.
This arrangement exists if decisions about relevant activities require
the unanimous consent of all parties sharing control.
MSCI World Chemicals Index
The MSCI World Chemicals Index is a stock index that includes the
Joint operation world’s biggest chemical companies. It measures the performance of
A joint operation is a joint arrangement in which the parties that the companies in the index in their respective national currencies,
share control have direct rights to the assets and liabilities relating to thus considerably reducing currency effects.
the arrangement. For joint operations, the proportional share of
assets, liabilities, income and expenses are reported in the BASF
Group Consolidated Financial Statements. N
Joint venture Nanomaterials
A joint venture is a joint arrangement in which the parties that have The International Organization for Standardization defines nano
joint control of a legally independent entity have rights to the net materials as materials with one or more external dimensions on a
assets of that arrangement. Joint ventures are accounted for using nanoscale or with internal structure or surface structure on a
the equity method in the BASF Group Consolidated Financial State- nanoscale. For regulatory purposes, there are additional definitions
ments. for nanomaterials worldwide.
Naphtha
L
Naphtha is petroleum that is produced during oil refining. Heavy
naphtha is the starting point for gasoline production. Light naphtha
Long-term incentive program (LTI) is the most important feedstock for steam crackers.
The long-term incentive program is a share-price-based compensa-
tion program for senior executives of the BASF Group and members
NMVOC (Nonmethane Volatile Organic Compounds)
of the Board of Executive Directors. The program aims to tie a por-
VOCs (volatile organic compounds) are organic substances that are
tion of the participants’ compensation to the long-term, absolute
present in the air as gas at low temperatures. These include some
and relative performance of BASF shares.
hydrocarbons, alcohols, aldehydes and organic acids. NMVOCs are
VOCs from which methane is excluded.
M
O
Materiality analysis/material aspects
BASF uses the materiality analysis to gain information from internal
OHSAS 18001
and external stakeholders about the significance of sustainability
The Occupational Health and Safety Assessment Series (OHSAS)
topics.
includes the standard OHSAS 18001, which contains a manage-
ment system for occupational safety. This system can be integrated
MDI into an existing quality and environmental protection management
MDI stands for diphenylmethane diisocyanate and is one of the system and certified accordingly.
most important raw materials for the production of polyurethane.
This plastic is used for applications ranging from the soles of high-
tech running shoes and shock absorbers for vehicle engines to insu-
lation for refrigerators and buildings.
BASF Report 2016 Overviews 239
Glossary
P S
Peak sales potential Special items
The peak sales potential of the crop protection pipeline describes the Special items arise from the integration of acquired businesses,
total peak sales generated for individual products in the research and restructuring measures, impairments, gains or losses resulting from
development pipeline. The peak sales corresponds to the highest divestitures and sales of shareholdings, and other expenses and
sales value to be expected from one year. The pipeline comprises income that arise outside of ordinary business activities.
innovative active ingredients and system solutions that have been on
the market since 2016 or will be launched on the market by 2026. Spot market (cash market)
A spot market is a market where an agreed-upon deal, including
Propylene oxide (PO) delivery, acceptance and payment, occurs immediately, as opposed
Propylene oxide (PO), a very reactive compound, is generated by to forward contracts, where the delivery, acceptance and payment
the oxidation of propylene and is used as basic chemical for further occurs at a point in time after the conclusion of the deal.
processing in the chemical industry.
Steam cracker
A steam cracker is a plant in which steam is used to “crack” naphtha
R
(petroleum) or natural gas. The resulting petrochemicals are the raw
materials used to produce most of BASF’s products.
REACH
REACH is a European Union regulatory framework for the registra-
Sustainable Solution Steering®
tion, evaluation and authorization of chemicals, and will be imple-
We use Sustainable Solution Steering® to review and guide our
mented gradually until 2018. Companies are obligated to collect
portfolio in terms of sustainability. The four categories – Accelerators,
data on the properties and uses of produced and imported
Performers, Transitioners and Challenged – indicate how our prod-
substances and to assess any risks. The European Chemicals
ucts and solutions already comply with sustainability requirements
Agency reviews the submitted dossiers and, if applicable, requests
and how we can increase their contribution.
additional information.
Renewable resources T
The term renewable resources refers to components from biomass
that originate from different sources (plants and microorganisms, TDI
for example), and are used for industrial purposes. Renewable TDI stands for toluene diisocyanate and is a raw material for the
resources are used for manufacturing numerous products. production of polyurethane. It is used primarily in the automotive
industry (for example, in seat cushions and interiors) and the furni-
Responsible Care® ture industry (for example, for flexible foams for mattresses or
Responsible Care® refers to a worldwide initiative by the chemical cushioning, or in wood coating).
industry to continuously improve its performance in the areas of
environmental protection, health and safety. TUIS
TUIS is a German transport accident information and emergency
Retention response system jointly operated by around 130 chemical compa-
Profits generated can be used in two ways: distribution to share- nies. The member companies can be reached by the public author-
holders or retention within the company. ities at any time and provide assistance over the telephone, expert
on-site advice or special technical equipment.
Return on assets
Return on assets describes the return we make on the average
assets employed during the year. It is calculated as income before
taxes and minority interests plus interest expenses as a percentage
of average assets.
240 Overviews BASF Report 2016
Glossary
Value chain
A value chain describes the successive steps in a production pro-
cess: from raw materials through various intermediate steps, such
as transportation and production, to the finished product.
Verbund
In the BASF Verbund (pronounced “fair-boond”), production facili-
ties, energy flow, logistics and infrastructure are intelligently net-
worked with each other in order to increase production yields, save
resources and energy, and reduce logistics costs. We also make
use of the Verbund principle for more than production, applying it
for technologies, knowledge, employees, customers, and partners,
as well.
Water stress areas
Water stress areas are areas in which water represents a scarce
resource, and where people abstract more than 60% of the water
available. The most important factors leading to water scarcity are:
low precipitation, high temperatures, low air humidity, unfavorable
soil properties and high water abstraction rates.
BASF Group 2016 at a glance
Publisher:
BASF SE
Communications & Government Relations
67056 Ludwigshafen
Design: Anzinger und Rasp, Munich
This report is printed on Printing: Kunst- und Werbedruck, Bad Oeynhausen
FSC® certified real art paper.
Photography:
Cover and page 1: Detlef Schmalow
Photo series: BASF, Keith Bedford/laif, Jordi Ruiz Cirera, Matt Eich,
hadynyah/Getty Images, IAC Group, Jonathan Jacob,
Aditya Kapoor, Herbert Lehmann/picture alliance, Gw.
Nam/Getty Images, Edwin Remsberg/Getty Images,
Collin Richie, Detlef Schmalow, Marcus Schwetasch
Board of Executive
Directors and
Supervisory Board: Andreas Pohlmann
Quarterly Statement, 1st Quarter 2017 / Annual Shareholders’ Meeting 2017
April 27, 2017 / May 12, 2017
Half-Year Financial Report 2017
July 27, 2017
Quarterly Statement, 3rd Quarter 2017
October 24, 2017
Full-Year Results 2017
February 27, 2018
Quarterly Statement, 1st Quarter 2018 / Annual Shareholders’ Meeting 2018
May 4, 2018
Report 2016
BASF supports the chemical industry’s
global Responsible Care initiative.
Further information Contact
Published on February 24, 2017 General inquiries
ISSN 1866-9387
Phone: +49 621 60-0
You can find this and other
Media Relations
BASF publications online at
Juliana Ernst, phone: +49 621 60-99123
basf.com
Sustainability Relations
You can also order the reports:
Thorsten Pinkepank, phone: +49 621 60-41976
COMC 1701 E
– By phone: +49 621 60-99001
Investor Relations
– Online: basf.com/publications
Dr. Stefanie Wettberg, phone: +49 621 60-48002
Internet
basf.com
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