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BASF Report 2018Economic, environmental and social performance

2018 2017 +/–

Sales1 million € 62,675 61,223 2.4%

EBITDA before special items1 million € 9,481 10,738 (11.7%)

EBITDA1 million € 9,166 10,765 (14.9%)

EBIT before special items1 million € 6,353 7,645 (16.9%)

EBIT1 million € 6,033 7,587 (20.5%)

EBIT after cost of capital1 million € 825 2,902 (71.6 %)

Net income million € 4,707 6,078 (22.6%)

Earnings per share € 5.12 6.62 (22.7%)

Assets million € 86,556 78,768 9.9%

Investments including acquisitions2 million €

10,735 4,364 146.0%

BASF Group 2018 at a glance

Key data

Segment data

Chemicals million €

Sales 2018 | 16,5012017 | 16,331

EBIT before special items

2018 | 3,3862017 | 4,233

Page 60

Performance Products million €

Sales 2018 | 15,8122017 | 16,217


2018 | 1,3762017 | 1,416

Page 67

Functional Materials & Solutions million €

Sales 2018 | 21,4352017 | 20,745


2018 | 1,3072017 | 1,617

Page 74

Agricultural Solutions million €

Sales 2018 | 6,1562017 | 5,696


2018 | 7342017 | 1,033

Page 80

1 Restated figures; for more information, see the Notes to the Consolidated Financial Statements from page 200 onward

2 Additions to intangible assets and property, plant and equipment

2018 2017 +/–

Employees at year-end 122,404 115,490 6.0%

Personnel expenses million € 10,659 10,610 0.5%

Research and development expenses1 million €

2,028 1,843 10.0%

Greenhouse gas million metric tonsemissions of CO2 equivalents

21.8 22.6 (3.5%)

Energy efficiency in kilograms of sales production processes product/MWh

602 625 (3.7%)

Investments in environmental protection million €

277 234 18.4%

Number of on-site sustainability audits of raw material suppliers

100 120 (16.7%)

Welcome to BASF

Our integrated corporate report combines financial and sustainability reporting to inform shareholders, employees and the interested public about the 2018 business year.

Chemistry for a sustainable futureBusiness success tomorrow means creating value for the environ-ment, society and business. Our innovations contribute to a sustain-able future. We support our customers in being more sustainable through our solutions and create new business opportunities that reinforce our customer relationships and attract new customers. In this way, we also contribute to achieving the U.N. Sustainable Development Goals (SDGs), which were adopted by the United Nations as globally recognized economic, environmental and social objectives.

On the cover:

Globally, BASF is conducting research on innovative cathode materials that

make electromobility a reality. BASF’s innovations for high-performance

lithium- ion batteries can help double the real range of a mid-size car from

300 to 600 kilometers by 2025 and significantly reduce the charging time of

electric vehicles. The photo shows a dry room at the research and

development center in Ludwigshafen, Germany, where BASF is working on

cathode materials for lithium-ion batteries and components for next-

generation batteries such as solid-state batteries. For more information on battery materials, see page 33 and from page 74 onward

BASF Report 2018 4

BASF Report 2018 22

About This Report 1 To Our Shareholders 2 Management’s Report 3 Corporate Governance 4 Consolidated Financial Statements 5 Supplementary Information Oil and Gas Business 6 Overviews

How We Create Value

STRICTLY CONFIDENTIAL!

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1 The fi gures in this graphic have been audited within the scope of the relevant sections of the Management’s Report in which they appear.

Our inputs Our outputs Our business model

Involved in

U.N. Global Compact

since 2000

122,404employees worldwide,

of which 3,174 apprentices

148 safety, security, health

and environmentalprotection audits

Early turnover rate of

1.3%

Around

3,000projects in research pipeline

8 Academic Research Alliances bundle partnerships

with university research groups

>50 external compliance

hotlines

21.7%Proportion of

women in leadershippositions

€10.7 bil lioninvested in property, plant and equipment

and intangible assets

€277 millioninvested in

environ mental protection

31.6 million MWh

Energy saved by Verbund and combined heat and

power generation

Sales of around

€9 billionfrom innovations that

we have launched in the past fi ve years

€1.1 billionin income taxes

Net income of

€4.7 billion

100raw material supplier

sites audited on sustainability

standards

Development opportunities

for all employees

Over

70,000suppliers

0 transportation incidents with

signifi cant impact on the environment

6.3 millionmetric tons of CO2 saved by

energy effi ciency

More than 11,000

employees in research and development

Around 900 patents fi led worldwide

We create chemistry for a sustainable future

Intelligent Verbund system

We offer our

90,000+customers innovative solutions

for a sustainable future

6 action areashelp us to sharpen our

customer focus

6Verbund sites

355additional production

sites worldwide

90 countries

BASF Group companies in more than

Research and development expenses of

€2.0 billion

15.1 million MWh

of electricity demand

€36.1 billion in equity

12 operating divisions

86 strategic business

units

4segments

Total assets of

€86.6 billion

How We Create Value

60,000+product applications assessed and rated

for aspects of sustainability

The 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).1

39.4 million MWh

of steam demand

Number of lost-time injuries per 200,000

working hours:

0.3

€62.7 billionin sales

ContentsDetailed tables of contents can be found on each colored chapter divider

About This Report 5

1

To Our Shareholders 7

Letter from the Chairman of the Board of Executive Directors 8

The Board of Executive Directors of BASF SE 11

BASF on the Capital Market 12

2

Management’s Report 15

Overview 16

The BASF Group 18

Our Strategy 25

The BASF Group’s Business Year 41

Responsible Conduct Along the Value Chain 90

Forecast 117

3

Corporate Governance 131

Corporate Governance Report 132

Compliance 140

Management and Supervisory Boards 142

Compensation Report 146

Report of the Supervisory Board 160

Declaration of Conformity Pursuant to Section 161 AktG 166

Declaration of Corporate Governance 167

4

Consolidated Financial Statements 168

Statement by the Board of Executive Directors 169

Independent Auditor’s Report 170

Statement of Income 176

Statement of Income and Expense Recognized in Equity 177

Balance Sheet 179

Statement of Cash Flows 181

Statement of Equity 182

Notes 183

5

Supplementary Information Oil and Gas Business 269

Supplementary Information on the Oil and Gas Business 270

6

Overviews 279

Ten-Year Summary 280

Trademarks 284

Glossary 285

How we create value – an overview of BASF’s business model based on the IIRC framework

For more information, see page 22

BASF Report 2018 5


About This Report

Integrated reporting

This integrated report documents BASF’s economic, environmental and social performance in 2018. 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, share-holders, business partners, neighbors and the public.

Further information

The following symbols indicate important information:

You can find more information in this report.

You can find more information online.

The content of this section is not part of the statutory audit of the annual financial statements but has undergone a separate audit with limited assurance by our auditor.

The content of this section is voluntary, unaudited information, which was critically read by the auditor.

The BASF Report onlineHTML version with additional features: basf.com/report

PDF version available for download: basf.com/basf_report_2018.pdf

Content and structure

▪ Integrated BASF Report serves as U.N. Global Compact progress report

▪ Sustainability reporting based on Global Reporting Initiative (GRI) standards

▪ Financial reporting according to International Financial Reporting Standards (IFRS), the German Commercial Code and German Accounting Standards (GAS)

The BASF Report combines the major financial and nonfinancial information necessary to thoroughly evaluate our performance.

We select the report’s topics based on the following reporting prin-ciples: Materiality, sustainability context, completeness, balance and stakeholder inclusion. In addition to our integrated report, we publish further information online. Links to this supplementary informa tion are provided in each section.

Our sustainability reporting has been based on Global Reporting Initiative (GRI) standards since 2003 and, since the BASF Report 2017, the “Comprehensive” option of the new Global Reporting Initiative standards.

We have been active in the International Integrated Reporting Council (IIRC) since 2014 in order to discuss our experiences of integrated reporting with other stakeholders and at the same time, receive inspira tion for enhancing our reporting. This report address-es elements of the IIRC framework by, for example, providing an illustrative overview of how we create value or demonstrating the relationships between financial and nonfinancial performance in the sections on the segments. The information in the BASF Report 2018 also serves as a progress report on BASF’s implementation of the 10 principles of the United Nations’ Global Compact and takes into consideration the Blueprint for Corporate Sustainability Leadership of the Global Compact LEAD platform.

The detailed GRI and Global Compact Index can be found in the online report. It provides an overview of all relevant information to fulfill the GRI indicators, as well as how we contribute to the United Nations’ Sustainable Development Goals (SDGs) and the principles of the U.N. Global Compact. The results of the limited assurance audit of this information can also be found here in the form of a report issued by KPMG AG Wirtschaftsprüfungsgesellschaft.

The information on the financial position and performance of the BASF Group comply with the requirements of International Financial Reporting Standards (IFRS), and, where applicable, the German Commercial Code, German Accounting Standards (GAS) and the guidelines on alternative performance measures from the European Securities and Markets Authority (ESMA). Internal control mecha-nisms ensure the reliability of the information presented in this report. BASF’s management confirmed the effectiveness of the internal control measures and compliance with the regulations for financial reporting.

http://basf.com/reporthttp://basf.com/basf_report_2018.pdf

BASF Report 2018 6


Material topics along the value chain, which we identified in internal strategic discussion processes, ongoing global data analysis and dialog with shareholders, form the focal points of reporting and define the limits of this report.

The 2018 BASF Online Report can be found at basf.com/report

For more information on our selection of sustainability topics, see page 36 onward and basf.com/materiality

For more information on the Global Reporting Initiative, see globalreporting.org

For more information on the Global Compact, see globalcompact.org and basf.com/en/global-compact

The GRI and Global Compact Index can be found at basf.com/en/gri-gc

For a visualization of BASF’s business model based on the IIRC framework, see “How we create value” on page 22

For more information on our control and risk management system, see page 123 onward

Data

▪ Relevant information included up to the editorial deadline of February 20, 2019

▪ Report published each year in English and German

All information and bases for calculation in this report are founded on national and international standards for financial and sustain-ability reporting. The data and information for the reporting period were sourced from the expert units responsible using representative methods. The reporting period is the 2018 business year. Relevant information is included up to the editorial deadline of February 20, 2019. The report is published each year in English and German.

BASF Group’s scope of consolidation for its financial reporting com-prises BASF SE, with its headquarters in Ludwigshafen, Germany, and all of its fully consolidated material subsidiaries and proportion-ally included joint operations. Shares in joint ventures and associated companies are accounted for, if material, using the equity method in the BASF Group Consolidated Financial Statements and are thus not included in the scope of consolidation.

The section “Employees” refers to employees active in a company within the BASF Group scope of consolidation as of December 31, 2018.

Our data collection methods for environmental protection and occu-pational safety are based on the recommendations of the Interna-tional Council of Chemical Associations (ICCA) and the European Chemical Industry Council (CEFIC). In the section “Environmental Protection, Health and Safety,” we report all data including informa-tion on the emissions and waste of the worldwide production sites of BASF SE, its subsidiaries, and joint operations based on our interest. Work-related accidents at all sites of BASF SE and its subsidiaries as well as joint operations and joint ventures in which we have sufficient authority in terms of safety management, are compiled worldwide regardless of our interest and reported in full. The assets and businesses acquired from Bayer are not yet included in reporting on environmental protection, health and safety in 2018. Unless otherwise indicated, further data on social responsibility and transportation safety refers to BASF SE and its consoli dated subsidiaries.

For more information on companies accounted for in the Consolidated Financial Statements, see the Notes from page 183 onward

The Consolidated Financial Statements begin on page 168

The list of shares held can be found at basf.com/en/corporategovernance

External audit and evaluation

Our reporting is audited by a third party. KPMG AG Wirtschaftsprü-fungsgesellschaft has audited the BASF Group Consolidated Finan-cial Statements and the Management’s Report and has approved them free of qualification. The audit of the Consolidated Financial Statements including the Notes is based on the likewise audited financial statements of the BASF Group companies.

Statements and figures pertaining to sustainability in the Manage-ment’s Report and Consolidated Financial Statements are also audited. The audit with limited assurance was conducted in accor-

dance with ISAE 3000 (Assurance Engagements other than Audits or Reviews of Historical Financial Information) and ISAE 3410 ( Assurance Engagements on Greenhouse Gas Statements), the relevant international auditing standards for sustainability reporting. The additional content provided on the BASF internet sites indicated in this report is not part of the information audited by KPMG.

KPMG also conducted a substantive audit with limited assurance of the nonfinancial statement (NFS).

The Independent Auditor’s Report can be found on page 170

A report on the sustainability information in the BASF Report 2018 can be found at basf.com/sustainability_information

A report on the substantive audit of the NFS can be found at basf.com/nfs-audit-2018

Forward-looking statements and forecasts

This report contains forward-looking statements. These statements are based on current estimates and projections of the Board of Executive Directors and currently available information. Forward- looking statements are not guarantees of the future developments and results outlined therein. These are dependent on a number of factors; they involve various risks and uncertainties; and they are based on assumptions that may not prove to be accurate. Such risk factors include those discussed in Opportunities and Risks on pages 123 to 130. We do not assume any obligation to update the forward-looking statements contained in this report above and beyond the legal requirements.

http://basf.com/reporthttp://basf.com/materialityhttp://globalreporting.orghttp://globalcompact.orghttp://basf.com/en/global-compacthttp://basf.com/en/corporategovernancehttp://basf.com/sustainability_informationhttp://basf.com/sustainability_informationhttp://basf.com/nfs-audit-2018

1To Our Share-holders

Letter from the Chairman of

the Board of Executive Directors 8

The Board of Executive Directors of BASF SE 11

BASF on the Capital Market 12

Chapter 1 pages 7–14

BASF Report 2018 8


Letter from the Chairman of the Board of Executive Directors

I am very happy to have my first opportunity as Chairman of the Board of Executive Directors of BASF SE and BASF’s Chief Technology Officer to present to you our annual report. I feel grateful and motivated to take on these new responsibilities, since I have loved working for this company for the past three decades. We have answers to the challenges facing society, whether it be climate change, urbanization or mobility. Every day I get to see how great our team is and how passionate they are about innovations based on chemistry. Our ambition is clear: We want BASF to remain the world’s leading company in the chemical industry. We want to be the first choice of our customers and impress them again and again.

Taking a look at our 2018 financial figures, it is evident that we did not reach our earnings targets. We reported sales of €62.7 billion in 2018. This represents an

increase of 2% compared to the previous year. Our EBIT before special items declined to €6.4 billion, down by 17% compared with 2017. Cash flows from operating activi-ties amounted to €7.9 billion, down 10% year on year, while free cash flow was €4.0 billion, compared with €4.8 billion in the prior year.

What are the reasons for this? Two-thirds of the earnings decline in 2018 can be attributed to the Chemicals segment. Prices for isocyanates fell sharply and cracker margins were lower than expected in all regions. In the second half of the year, low water levels on the Rhine River posed a particular challenge for us. At the Ludwigshafen site, at times we were unable to receive any deliveries of raw materials via inland waterways. Consequently, we were forced to reduce capacity utilization at our plants. This alone reduced our earnings by around €250 million.

Moreover, we noticed a significant cooling in our key markets, especially the auto-motive industry, in the second half of the year. In addition, demand from our customers in China decreased considerably. The trade conflict between the United States and China was a factor in this slowdown.

Looking to the stock market, it is clear that the BASF share price was negatively impacted by the considerable year-on-year decline in earnings as well as the unfavor-able macroeconomic and geopolitical developments. At the end of 2018, our share price was €60.40. Compared with the closing price at the end of the previous year, this represents a decrease of 34%.

We are not satisfied with our business performance in 2018 or with our share price development. We know that we can do more.

However, market conditions will not get any easier for us in 2019. Political and economic risks have grown. The geopolitical tensions and trade conflicts, especially between the United States and China, will continue. We therefore anticipate a slight decline in global economic growth. Global chemical production will however likely grow about as strongly as it did in 2018.

How do we respond to this? Last year, we already began working intensely on making BASF fit for the future. As part of this, in 2018 we further developed our strategy,

Letter from the Chairman of the Board

of Executive Directors

BASF Report 2018 9



which we presented in November. The measures we have identified will also put us in a good position to face stronger headwinds.

Our strategy focuses on growth: We want to grow profitably and sustainably. We invest where we see opportunities for growth. At the same time, we will continue to rigorously reduce costs wherever it makes sense. In everything that we do, we are guided by these questions: How can we create more value for our customers, for society and thus for our shareholders? How can we better meet the expectations of our customers?

We are driven by our purpose: We create chemistry for a sustainable future. We are convinced that we will only be successful in the long term if we create value for society and our innovations address all three dimensions of sustainability: the economic, environmental and social aspects. This is why we have also set ourselves nonfinancial targets in addition to our financial targets.

Sustainability is very important to us. We are therefore aiming for CO2-neutral growth until 2030, keeping our greenhouse gas emissions flat at the 2018 level. This is very ambitious since we have already reduced our absolute emissions by half since 1990 while our production volume has doubled over the same period. Most of the potential for optimization has already been exploited. We are therefore developing new lower-carbon technologies as part of our Carbon Management Program.

Another BASF targets is to generate sales of around €22 billion with Accelerator products by 2025. These are innovative products that make a decisive contribution to sustainability in the value chain. As part of our commitment to sustainability, we are involved in the U.N. Global Compact and we support the U.N. Sustainable Develop-ment Goals (SDGs). BASF is a founding member of the Responsible Cobalt Initiative and the World Economic Forum’s Global Battery Alliance. In these initiatives, launched in 2017, companies and international organizations such as the OECD and UNICEF are joining forces to tackle the challenges in the battery materials supply chain.

With our ChemCycling project, we want to take plastic waste which cannot be mechanically recycled and use it as a feedstock. This will reduce our consumption of

fossil resources. We strive to be a pioneer in sustainability in the chemical industry. After all, sustainability is also a key growth area for BASF, where we want to systemat-ically utilize our opportunities.

In our new strategy, we have identified additional priorities: operational excellence, digitalization, innovation, portfolio management and employees. In each of these action areas we want to raise the bar and be the pacesetter in our industry. BASF is known for the safe and reliable operation of chemical plants. Through operational excellence, we want to become even stronger and be a leading plant operator. To achieve this, we are investing €400 million per year – more than ever before – to optimize our plants. Furthermore, we plan to digitalize 350 production facilities by 2022. We are accelerating BASF’s digital transformation and strengthening our digital competencies. This means we will become faster, more efficient and more effective. This is our vision of internal collaboration aimed at benefiting our customers. With simpler and more flexible processes and more agile structures, we will be even better able to meet our customers’ expectations. To accomplish this, we will also be making some organizational changes. This means that many employees from the central units will move to the divisions to work even closer to our customers.

As a scientist, again and again I am inspired by the creativity and ideas of our employ-ees. We have a unique wealth of skills, innovative strength and resources that have made BASF the world’s leading chemical company. Nevertheless, we want to improve even more and increase our sales of innovations. This includes work on breakthrough innovations, the development of new innovation strategies and structures that bring our employees in research and development closer to our markets and customers.

We are also further developing our portfolio with innovations as well as investments and, where appropriate and necessary, with targeted acquisitions and divestitures. Our aim is to position each of our businesses so that it can successfully hold its own against the competition. For example, in 2018 we completed the purchase of signifi-cant parts of Bayer’s crop protection and seed business. We are now the world’s fourth-largest producer of crop protection products and seeds – and we are just as good and ambitious as our competitors. This transaction has given us new capacity for innovation and economies of scale.

“We further devel o p ed our strategy in 2018. Our strategy focuses on growth.”

“One of our targets is to generate sales of around €22 billion with Accelerator products by 2025.”

“We want to achieve CO2-neutral growth until 2030 and keep our greenhouse gas emissions flat at the 2018 level.”

BASF Report 2018 10



The Verbund remains at the heart of our portfolio. Our new strategy will continue to utilize the advantages the Verbund offers and we will make it even stronger. Our in vest ments in our future will therefore focus primarily on our own plants in growth markets. With our major investment project in the southern Chinese province of Guangdong, we plan to build a new BASF Verbund site in the world’s largest chemical market. We signed an agreement with the provincial government at the beginning of 2019. We estimate a total investment of around $10 billion to complete the project, which will be wholly owned by BASF.

In January 2019, we signed a memorandum of understanding with India’s Adani Group regarding a major investment in the acrylics value chain in India. This would not only expand our footprint in a fast-growing market. The production facility at Mundra port would also be our first CO2-neutral site, operated with 100% renewable energy.

What financial targets have we set for ourselves in our new strategy? We want to grow profitably and faster than the market. We are targeting an increase in BASF’s EBITDA before special items of 3% to 5% annually and a return on capital employed (ROCE) well above the cost of capital percentage every year. For our shareholders, we want to deliver above-average value compared with the chemical industry and increase our dividend per share each year.

We stand by our ambitious dividend policy and propose to the Annual Shareholders’ Meeting that the dividend for the 2018 business year be raised by €0.10 to €3.20 per share. The BASF share would thus offer a dividend yield of 5.3% based on the 2018 year-end share price. In total, we plan to pay out €2.9 billion to our shareholders.

BASF’s success is the result of its employees and their outstanding efforts and commitment to the company. For this excellent team performance and dedication to BASF, I want to thank all employees on behalf of the Board of Executive Directors.

2019 will be an exceptionally demanding year of transformation – economically, politically and strategically. It will be a year in which we make BASF more agile, flexible and customer-focused with our strategy. At the same time, we will maintain a balance: We will introduce structural changes and keep what works, we will achieve cost savings and invest in the future. We want to implement our internal changes by the end of 2019. This will require focus, energy and strength – and these are all things we have.

We have the right strategy, the skills and the passion necessary to make BASF fit for the future. And that is why I am optimistic.

I am certain that BASF will remain the leading global company in this industry. The entire team at BASF is working together to ensure this. This is our ambition. Dear shareholders, I am glad that you are accompanying us on this journey.

Yours,

Martin Brudermüller

“Our new strategy capitalizes on the advantages of our Verbund and we will make the Verbund even stronger.”

“We have the right strategy, the skills and the passion necessary to make BASF fit for the future.”

BASF Report 2018 11


The Board of Executive Directors of BASF SE

The Board of Executive Directors of

BASF SE

Saori Dubourg

Michael Heinz Sanjeev Gandhi Wayne T. Smith

Dr. Markus KamiethDr. Hans-Ulrich EngelVice Chairman of the Board of Executive Directors

The Board of Executive Directors of BASF SE

Dr. Martin BrudermüllerChairman of the Board of Executive Directors

BASF Report 2018 12

Change in value of an investment in BASF shares in 2018

With dividends reinvested; indexed

DecNovOctSepAugJulJunMayAprMarFebJan

BASF share –31.8% DAX 30 –18.3% EURO STOXX 50 –12.0% MSCI World Chemicals –14.4%

70

80

100

110

90

70

80

100

110

90


BASF on the Capital Market


In 2018, the stock markets were characterized by long periods of uncertainty as a result of geopolitical tensions and trade conflicts, especially between the United States and China. The BASF share price declined considerably over the course of the year. We stand by our ambitious dividend policy and will propose a dividend of €3.20 per share at the Annual Shareholders’ Meeting – an increase of 3.2% com-pared with the previous year.

BASF share performance

▪ BASF share declines 34.2% in 2018 ▪ Long-term performance continues to clearly exceed benchmark indexes

The BASF share closed the 2018 stock market year with a closing price of €60.40, a decrease of 34.2% compared with the previous year’s closing price. The considerable year-on-year decline in the BASF Group’s earnings was primarily attributable to considerably lower earnings in the Chemicals segment, mainly as a result of lower margins for isocyanates and steam cracker products. The segment’s earnings were also negatively impacted by the low water levels on the Rhine River in the second half of 2018. In addition, geopolitical tensions and trade conflicts, especially between the United States and China, led to a slowdown in economic growth over the course of the year particularly in Asia, and there mainly in China. The ensu-ing downturn in demand from significant customer industries, in

particular the automotive industry, further weighed on BASF’s share performance.

Assuming that dividends were reinvested, BASF’s share perfor-mance declined by 31.8% in 2018. The benchmark indexes of the German and European stock markets – the DAX 30 and the EURO STOXX 50 – lost 18.3% and 12.0% over the same period, respec-tively. The global industry index MSCI World Chemicals fell by 14.4%.

Viewed over a 10-year period, the long-term performance of BASF shares still clearly surpasses the German, European and global benchmark indexes. The assets of an investor who invested €1,000 in BASF shares at the end of 2008 and reinvested the dividends in

Long-term performance of BASF shares compared with indexes

Average annual increase with dividends reinvested

2013–2018 (1.5%)

2.0%

2.0%

4.9%

2008–2018 12.3%

8.2%

5.2%

11.4%

▪ BASF share ▪ DAX 30 ▪ EURO STOXX 50 ▪ MSCI World Chemicals

Weighting of BASF shares in important indexes as of December 31, 2018

DAX 30 6.3%

EURO STOXX 50 2.6%

MSCI World Chemicals 7.0%

BASF Report 2018 13



additional BASF shares would have increased to €3,201 by the end of 2018. This represents an annual yield of 12.3%, placing BASF shares above the returns for the DAX 30 (8.2%), EURO STOXX 50 (5.2%) and MSCI World Chemicals (11.4%) indexes.

Proposed dividend of €3.20 per share

At the Annual Shareholders’ Meeting, the Board of Executive Direc-tors and the Supervisory Board will propose a dividend payment of €3.20 per share. We stand by our ambitious dividend policy of increas ing our dividend each year and plan to pay out €2.9 billion to our shareholders.

Based on the year-end share price for 2018, BASF shares offer a high dividend yield of around 5.3%. BASF is part of the DivDAX share index, which contains the 15 companies with the highest dividend yield in the DAX 30.

Dividend per share

€ per share

20182015 2016 20172013 20142012201120102009

3.10 3.20

1.70

2.20

2.60 2.702.80 2.90

3.00

2.50

Broad base of international shareholders

With over 600,000 shareholders, BASF is one of the largest publicly owned companies with a high free float. An analysis of the share-holder structure carried out at the end of 2018 showed that, at

around 20% of share capital, the United States and Canada made up the largest regional group of institutional investors. Institutional investors from Germany accounted for around 13%. Shareholders from the United Kingdom and Ireland hold 10% of BASF shares, while investors from the rest of Europe hold a further 17% of capital. Approximately 30% of the company’s share capital is held by private investors, nearly all of whom reside in Germany. BASF is therefore one of the DAX 30 companies with the largest percentage of private shareholders.

Shareholder structure

By region, rounded

43% Germany

Rest of world 4%

Rest of Europe 17%

6% Not identified

20% United States/Canada

United Kingdom/Ireland 10%

Employees becoming shareholders

In many countries, we offer share purchase programs that turn our employees into BASF shareholders. In 2018, for example, 25,000 employees (2017: 23,700) purchased employee shares worth €79 million (2017: €63 million).

For more information on employee share purchase programs, see page 114

BASF as a sustainable investment

▪ CDP includes BASF in its “Climate Change A List” ▪ BASF continues to be rated “AA” by MSCI ESG Research

BASF has participated in CDP’s program for reporting on data rele-vant to climate protection since 2004. CDP is an an international orga ni za tion representing more than 650 investors with over $87 tril-

lion in assets and 115 major purchasing organizations with $3.3 tril-lion in purchasing power. After achieving a score of “A–” for several years, thus attaining “Leadership” status, BASF was included in CDP’s “Climate Change A List” with the highest possible rating of “A” in 2018. Companies at this level are distinguished by the com-pleteness and transparency of their reporting, their approaches for manag ing the opportunities and risks associated with climate change, and clear corporate strategies to reduce emissions. BASF has also reported on water management to CDP since 2010 and was again acknowledged as a global leader in sustainable water management in 2018. The organization awarded BASF an “A–” rat-ing in recognition of its actions to manage water more sustainably.

BASF continued to be included in the MSCI ESG Ratings in 2018 with a score of “AA.” The analysts highlighted BASF’s Verbund sys-tem as a key competitive advantage for resource-efficient pro cesses. BASF’s emissions intensity for greenhouse gases and air pollutants – one of the lowest compared with competitors in the chemical indus try – was also assessed positively.

For more information on the key sustainability indexes, see basf.com/sustainabilityindexes

For more information on energy and climate protection, see page 103 onward

For more information on water, see page 108 onward

Analysts’ recommendations

Around 25 financial analysts regularly publish studies on BASF. The latest analyst recommendations for our shares as well as the aver-age target share price ascribed to BASF by analysts can be found online at basf.com/analystestimates.

http://basf.com/sustainabilityindexeshttp://basf.com/sustainabilityindexes

BASF Report 2018 14



Further information on BASF share

Securities code numbers

Germany BASF11

United Kingdom 0083142

Switzerland 11450563

United States (CUSIP number) 055262505

ISIN International Securities Identification Number DE000BASF111

International ticker symbols

Deutsche Börse BAS

London Stock Exchange BFA

Swiss Exchange BAS

Key BASF share data

2014 2015 2016 2017 2018

Year-end price € 69.88 70.72 88.31 91.74 60.40

Year high € 87.36 96.72 88.31 97.46 97.67

Year low € 65.61 65.74 56.70 79.64 58.40

Year average € 77.93 79.28 70.96 88.16 80.38

Daily trade in shares1

million € 224.5 264.5 201.9 185.7 229.6

million shares 2.9 3.3 2.9 2.1 2.9

Number of shares December 31 million shares 918.5 918.5 918.5 918.5 918.5

Market capitalization December 31 billion € 64.2 65.0 81.1 84.3 55.5

Earnings per share € 5.61 4.34 4.42 6.62 5.12

Adjusted earnings per share € 5.44 5.00 4.83 6.44 5.87

Dividend per share € 2.80 2.90 3.00 3.10 3.20

Dividend yield2 % 4.01 4.10 3.40 3.38 5.30

Payout ratio % 50 67 68 47 63

Price-earnings ratio (P/E ratio)2 12.5 16.3 20.0 13.9 11.8

1 Average, Xetra trading 2 Based on year-end share price

Close dialog with the capital market

▪ Roadshows for institutional investors and talks with rating agencies

▪ Informational events for private investors ▪ Capital Markets Day on the corporate strategy

Our corporate strategy aims to create long-term value. We support this strategy through regular and open communication with all capi-tal market participants. We engage with institutional investors and rating agencies in numerous one-on-one meetings, as well as at roadshows and conferences worldwide, and give private investors an insight into BASF at informational events.

In November 2018, we informed analysts and investors about BASF Group’s updated corporate strategy at our Capital Markets Day in Ludwigshafen, Germany. Key topics were our even stronger cus-tomer focus, the new financial and nonfinancial targets, and the segment structure going forward.

In 2018, we once again offered special events aimed toward investors who base their investment decisions on sustainability cri-teria. We outlined in particular our measures for climate protection, energy efficiency, health and safety. In addition, we offered several creditor relations roadshows, where credit analysts and creditors could learn more about our business and financing strategy.

For more information on our credit ratings, see the Financial Position on page 54

Analysts and investors have confirmed the quality of our financial market communications. We took first place in the “Best ESG communi cations” and “Best IR website” categories in the annual

survey conducted by Britain’s IR Magazine. Germany’s Manager Magazin also recognized BASF at the presentation of its Investors’ Darling awards with second place in the DAX category and first place in the digital communications category. In January 2019, Institutional Investor magazine awarded BASF first place in the “Best IR in Germany” category for its investor relations program.

For more information about BASF stock, see basf.com/share

Register for the newsletter with current topics and dates at basf.com/share/newsletter

Contact the Investor Relations team by phone at +49 621 60-48230 or email [email protected]

http://basf.com/sharehttp://basf.com/share/newslettermailto:ir%40basf.com?subject=

2Manage-ment’s Report

Overview 16 Nonfinancial Statement Disclosures 17

The BASF Group 18

How We Create Value 22Goal Achievement in 2018 23

Our Strategy 25

Corporate Strategy 25

Value-Based Management 29Innovation 31Integration of Sustainability 36

The BASF Group’s Business Year 41

Material Investments and Portfolio Measures 41

Economic Environment 43

Results of Operations 46

Net Assets 51

Financial Position 53

Actual Development Compared with Outlook for 2018 57

Business Review by Segment 58Chemicals 60

Performance Products 67

Functional Materials & Solutions 74

Agricultural Solutions 80

Other 85

Discontinued Oil and Gas Business 86

Regional Results 88

Responsible Conduct Along the Value Chain 90 Supplier Management 90Raw Materials 92Environmental Protection, Health and Safety 95Employees 110

Customer Orientation 116

Forecast 117

Economic Environment in 2019 117

Outlook 2019 120

Opportunities and Risks 123

Chapter 2 pages 15–130

BASF Report 2018 16


Overview

Overview

The Management’s Report comprises the chapter of the same name on pages 15 to 130, as well as the disclosures required by takeover law, the Compensation Report and the Declaration of Corporate Governance, which are presented in the Corporate Governance chapter. The Nonfinancial Statement (NFS) is integrated into the Management’s Report.

Nonfinancial Statement (NFS) in accordance with sections 315b and 315c of the German Commercial Code (HGB)

The NFS disclosures can be found in the relevant sections of the Management’s Report and have been prepared in accordance with the appropriate frameworks: the Global Reporting Initiative Stan-dards (“Comprehensive” application option) and the reporting require ments of the U.N. Global Compact.

The table on the following page shows the sections and subsections in which the individual disclosures can be found. In addition to a description of the business model, the NFS includes disclosures on the following matters, to the extent that they are required to under-stand the development and performance of the business, the Group’s position and the impact of business development on the following matters: – Environmental matters – Employee-related matters – Social matters – Respect for human rights – Anti-corruption and bribery matters

Within the scope of the audit of the annual financial statements, the external auditor KPMG checked pursuant to section 317(2) sen-tence 4 HGB that the NFS was presented in accordance with the statutory requirements. KPMG also conducted a substantive audit with limited assurance of the NFS. A report on this substantive audit can be found online at basf.com/nfs-audit-2018 and is part of the BASF Report 2018. The audit was conducted in accordance with ISAE 3000 (Assurance Engagements other than Audits or Reviews of Historical Financial Information) and ISAE 3410 (Assurance Engagements on Greenhouse Gas Statements), the relevant inter-national auditing standards for sustainability reporting.

Compensation Report and disclosures in accordance with section 315a HGB

The Compensation Report including the description of the principles of the compensation system in accordance with section 315a(2) HGB can be found in the Corporate Governance chapter from page 146 onward, and the disclosures in accordance with section 315a(1) HGB (takeover-related disclosures) from page 137 onward. They form part of the Management’s Report, which is audited as part of the audit of the annual financial statements.

Consolidated Declaration of Corporate Governance in accordance with section 315d HGB in connection with section 289f HGB

The Consolidated Declaration of Corporate Governance in accor-dance with section 315d HGB in connection with section 289f HGB can be found in the Corporate Governance chapter from page 131 onward and is a component of the Management’s Report. It com-prises: – The Corporate Governance Report including the description of the diversity concept for the composition of the Board of Execu-tive Directors and the Supervisory Board (excluding the disclo-sures required by takeover law in accordance with section 315a(1) HGB)

– Compliance reporting – The Declaration of Conformity pursuant to section 161 of the German Stock Corporation Act

Pursuant to section 317(2) sentence 6 HGB, the auditor checked that the disclosures according to section 315d HGB were made.

Further information

The following symbols indicate important information:

You can find more information in this report.

You can find more information online.

The content of this section is not part of the statutory audit of the annual financial statements but has undergone a separate audit with limited assurance by our auditor.

The content of this section is voluntary, unaudited information, which was critically read by the auditor.

BASF Report 2018 17


Nonfinancial Statement Disclosures

Nonfinancial Statement (NFS) disclosures in the relevant chapters of the integrated report

NFS disclosure Topics Concepts and results

Business model The BASF Group Pages 18–21

Environmental matters Process safety Page 24 (goals)Pages 95 and 97–98 (goals, measures, results)

Emergency response and corporate security Pages 95 and 98–99 (goals, measures, results)

Product stewardship Page 24 (goals)Pages 95 and 100–101 (goals, measures, results)

Transportation and storage Pages 95 and 102 (goals, measures, results)

Energy and climate protection Page 24 (goals)Pages 95 and 103–106 (goals, measures, results)

Emissions to air Pages 95 and 107 (goals, measures, results)

Management of waste and contaminated sites Pages 95 and 107 (goals, measures, results)

Water Page 24 (goals)Pages 95 and 108–109 (goals, measures, results)

Portfolio management Page 24 (goals)Pages 37–38 (goals, measures, results)

Supplier management Page 23 (goals)Pages 90–91 (goals, measures, results)

Employee-related matters Occupational safety Page 24 (goals)Pages 95 and 96–97 (goals, measures, results)

Health protection Page 24 (goals)Pages 95 and 98 (goals, measures, results)

Employee engagement Page 111 (goals, measures, results)

What we expect from our leaders Page 111 (goals, measures, results)

Inclusion of diversity Page 23 (goals) Page 112 (goals, measures, results)

Competition for talent Page 113 (goals, measures, results)

Learning and development Pages 113–114 (goals, measures, results)

Compensation and benefits Page 114 (goals, measures, results)

Dialog with employee representatives Page 115 (goals, measures, results)

Global labor and social standards Page 115 (goals, measures, results)


Social matters Social commitment Page 40 (goals, measures, results)

Respect for human rights Responsibility for human rights Page 39 (goals, measures, results)

Global labor and social standards Page 115 (goals, measures, results)


Anti-corruption and bribery matters Compliance Pages 140–141 (goals, measures, results)


Nonfinancial Statement Disclosures

BASF Report 2018 18

1

2

3

4

5


The BASF Group

The BASF Group

At BASF, we create chemistry for a sustainable future. We combine economic success with environmental protection and social responsibility. The approximately 122,000 employ-ees in the BASF Group work on contributing to the success of our customers in nearly all sectors and almost every country in the world. Until December 31, 2018, our portfolio was arranged into four segments: Chemicals, Performance Prod-ucts, Functional Materials & Solutions and Agricultural Solu-tions.1 Since January 1, 2019, BASF’s activities have been grouped into six segments: Chemicals, Materials, Industrial Solutions, Surface Technologies, Nutrition & Care and Agri-cultural Solutions.

Intelligent Verbund conceptProduction, technology, market, digitalization

In 90+ countriesemployees contribute to our success and that of our customers worldwide

New organizationsince January 1, 2019

Closer to customersby embedding business-critical parts of the functional units into the divisions

Organization of the BASF Group until December 31, 2018

▪ Twelve divisions grouped into four segments ▪ Regional divisions, functional units and corporate and research units support our business

Until December 31, 2018, our 12 divisions1 were grouped into four segments based on their business models: Chemicals, Performance Products, Functional Materials & Solutions and Agricultural Solutions. On September 27, 2018, BASF and LetterOne signed a definitive agreement to merge their oil and gas businesses in a joint venture. The new joint venture will operate under the name Winters hall DEA. Since the agreement was signed, we have no longer reported on BASF’s oil and gas business as a separate Oil & Gas segment. Until closing, its earnings will be presented as a separate item, income after taxes from discontinued operations. Closing of the transaction is expected in the first half of 2019, subject to the approvals of merger control and foreign investment authorities as well as mining authorities and the German Federal Network Agency. In the Agricultural Solutions segment, we renamed the division from Crop

Protection to Agricultural Solutions after the acquisition of significant businesses from Bayer was closed in August 2018, especially for seeds.

Our divisions bear operational responsibility and are organized according to sectors or products. They manage our 54 global and regional business units and develop strategies for the 86 strategic business units.1

Our regional units are responsible for optimizing local infrastructure, and contribute to tapping our market potential. For financial report-ing purposes, we organize the regional divisions into four regions: Europe; North America; Asia Pacific; South America, Africa, Middle East.

Seven functional units and eight corporate units support the BASF Group’s business activities. The functional and corporate units pro-vide services in areas such as finance, human resources, engineer-ing and site management, environmental protection, health and

BASF structure until December 31, 20181

Percentage of total sales in 2018

1 Chemicals– Petrochemicals– Monomers– Intermediates

26%

2 Performance Products

– Dispersions & Pigments– Care Chemicals– Nutrition & Health– Performance Chemicals

25%

3 Functional Materials & Solutions

– Catalysts– Construction Chemicals– Coatings– Performance Materials

34%

4 Agricultural Solutions – Agricultural Solutions 10%

5 Other 5%

1 Excluding the oil and gas activities presented as discontinued operations

BASF Report 2018 19

safety, investor relations, and communications. Our global research units safeguard our innovative capacity and competitiveness.

Business processes such as the procurement of raw materials and services, production and transport to customers are the shared responsi bility of the divisions and the functional units.

For more information on the products and services offered by the segments, see from pages 61, 68, 75 and 81 onward

For more information on the effects of the agreement with LetterOne, see page 86

New organization of the BASF Group as of January 1, 2019

As of January 1, 2019, we have twelve divisions grouped into six segments as follows: – Chemicals: Petrochemicals and Intermediates – Materials: Performance Materials and Monomers – Industrial Solutions: Dispersions & Pigments and Performance Chemicals

– Surface Technologies: Catalysts, Coatings and Construction Chemicals

– Nutrition & Care: Care Chemicals and Nutrition & Health – Agricultural Solutions: Agricultural Solutions

We are considering the possibility of merging our construction chemicals business with a strong partner, as well as the option of divesting this business. The outcome of this review is open. The Construction Chemicals division will be reported under the Surface Technologies segment until signing of a transaction agreement.

BASF’s new segment structure will allow a more differentiated steer-ing of our businesses according to their market-specific competitive environment. It will increase transparency regarding the results of our segments and divisions and highlight the importance of the Verbund and value chains to our business success. BASF aims to clearly position its businesses against their relevant competitors and establish a high-performance organization to enable BASF to be successful in an increasingly competitive market environment.

The Chemicals segment will remain the cornerstone of our Verbund structure. It supplies the other segments with basic chemicals and intermediates, contributing to the organic growth of our key value chains. Alongside internal accounts, our customers include the chemical and plastics industries. We aim to increase our competi-tiveness through technological leadership and operational excel-lence.

The Materials segment’s portfolio comprises advanced materials and their precursors for new applications and systems. These include isocyanates and polyamides as well as inorganic basic products and specialties for the plastics and plastics processing industries. We aim to grow organically through differentiation via specific technological expertise, industry know-how and customer proximity to maximize value in the isocyanate and polyamide value chains.

The Industrial Solutions segment develops and markets ingredi-ents and additives for industrial applications such as polymer dis-persions, pigments, resins, electronic materials, antioxidants and admixtures. We aim to drive organic growth in key industries such as automotive, plastics or electronics and expand our position in value-enhancing ingredients and solutions by leveraging our com-prehensive industry expertise and application know-how.

The Surface Technologies segment comprises our businesses that offer chemical solutions on and for surfaces. Its portfolio includes coatings, rust protection products, catalysts and battery materials for the automotive and chemical industries. The aim is to drive organic growth by leveraging our portfolio of technologies and know-how, and to establish BASF as a leading and innovative provider of battery materials as well.

In the Nutrition & Care segment, we strive to expand our position as a leading provider of nutrition and care ingredients for consumer products in the area of nutrition, home and personal care. Custom-ers include food and feed producers as well as the pharmaceutical,

cosmetics, detergent and cleaner industries. We aim to enhance and broaden our product and technology portfolio. Our goal is to drive organic growth by focusing on emerging markets, new busi-ness models and sustainability trends in consumer markets, sup-ported by targeted acquisitions.

The Agricultural Solutions segment aims to further strengthen our market position as an integrated provider of crop protection products and seeds. Its portfolio comprises fungicides, herbicides, insecticides and biological crop protection products, as well as seeds and seed treatment products. We also offer farmers digital solutions combined with practical advice. Our main focus is on innovation- driven organic growth, targeted portfolio expansion as well as leveraging synergies from the acquired businesses.

In addition to the new segment structure, the composition of a number of divisions will also change. The propylene oxide and pro-pylene glycol business will be transferred from the Petrochemicals division to the Monomers division. The superabsorbents business will be allocated to the Petrochemicals division rather than the Care Chemicals division in the future. The styrene, polystyrene and styrene-based foams business, which previously mainly fell under the Performance Materials division and a small part under Other, will be bundled in the Petrochemicals division.

In addition, BASF will embed business-critical parts of its functional units – such as engineering services, procurement and logistics – into the divisions to bring its employees closer to its customers and improve customer-specific agility. We will create leaner structures in our functional units, research and development and in governance functions.

For more information on the new segment structure as of January 1, 2019, see the Notes to the Consolidated Financial Statements from page 211 onward


The BASF Group

BASF Report 2018 20

Sites and Verbund

▪ Six Verbund sites with intelligent plant networking ▪ 355 additional production sites worldwide

BASF has companies in more than 90 countries. We operate six Verbund sites and 355 additional production sites worldwide. Our Verbund site in Ludwigshafen, Germany, is the world’s largest chemical complex owned by a single company that was developed as an integrated network. This was where the Verbund principle

was originally established and continuously optimized before being implemented at additional sites.

The Verbund system is one of BASF’s great strengths. We add value by using our resources efficiently. The Production Verbund intelli-gently links production units and their energy supply so that, for example, the waste heat of one plant provides energy to others. Furthermore, one facility’s by-products can serve as feedstock elsewhere. This not only saves us raw materials and energy, it also avoids emissions, lowers logistics costs and leverages synergies.

We also make use of the intelligent Verbund principle for more than production, applying it for technologies, the market and digitalization as well. Expert knowledge is pooled in our global research platforms.

For more information on the Verbund concept, see basf.com/en/verbund

BASF sites

Regional centersSelected sites

Verbund sites

Selected research and

development sites

Geismar

Freeport

FlorhamPark

Ludwigshafen

Antwerp

Nanjing

Hong Kong

Kuantan

São Paulo


The BASF Group

BASF Report 2018 21

BASF sales by region 2018

Location of customer

Asia Pacific 23%

South America, Africa, Middle East 9%42% Europe

26% North America

€62,675 million

Procurement and sales markets

▪ Over 90,000 customers; broad customer portfolio ▪ More than 70,000 suppliers

BASF supplies products and services to over 90,000 customers1 from various sectors in almost every country in the world. Our cus-tomer portfolio ranges from major global customers and medium- sized businesses to end consumers.

We work with over 70,000 Tier 1 suppliers from different sectors worldwide. They supply us with important raw materials, chemicals, investment goods and consumables, and perform a range of ser-vices. Some of our most important raw materials are naphtha, natu-ral gas, methanol, ammonia and benzene.

For more information on customers, see page 116; for more information on suppliers, see page 90 onward

BASF sales by industry 2018

Direct customers

>20% Chemicals and plastics

10–20% Consumer goods | Transportation

5–10% Agriculture | Construction | Energy and resources

BASF Report 2018 22


How We Create Value

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en

tO

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rati

on

sE

mp

loye

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1 The figures in this graphic have been audited within the scope of the relevant sections of the Management’s Report in which they appear.

Our inputs Our outputs Our business model

Involved in

U.N. Global Compact

since 2000

122,404employees worldwide,

of which 3,174 apprentices

148 safety, security, health

and environmentalprotection audits

Early turnover rate of

1.3%

Around

3,000projects in research pipeline

8 Academic Research Alliances bundle partnerships

with university research groups

> 50 external compliance

hotlines

21.7%Proportion of

women in leadershippositions

€10.7 bil lioninvested in property, plant and equipment

and intangible assets

€277 millioninvested in

environ mental protection

31.6 million MWh energy saved by the Verbund

and combined heat and power generation

Sales of around

€9 billionfrom innovations that

we have launched in the past five years

€1.1 billion in income taxes

Net income of

€4.7 billion

100raw material supplier

sites audited on sustainability

standards

Development opportunities

for all employees

Over

70,000suppliers

0 transportation incidents with

significant impact on the environment

6.3 million metric tons of CO2 saved by

energy efficiency

More than 11,000

employees in research and development

Around 900 patents filed worldwide

We create chemistry for a sustainable future

Intelligent Verbund system

We offer our

90,000+customers innovative solutions

for a sustainable future

6 action areashelp us to sharpen our

customer focus

6Verbund sites

355additional production

sites worldwide

90 countries

BASF Group companies in more than

Research and development expenses of

€2.0 billion

15.1 million MWh

of electricity demand

€36.1 billion in equity

12 operating divisions

86 strategic business

units

4segments

Total assets of

€86.6 billion

How We Create Value

60,000+product applications assessed and rated

for aspects of sustainability

The 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).1

39.4 million MWh

of steam demand

Number of lost-time injuries per 200,000

working hours:

0.3

€62.7 billionin sales

BASF Report 2018 23


Goal Achievement in 2018


We carry out our corporate purpose, “We create chemistry for a sustainable future,” by pursuing ambi-tious goals along our entire value chain. In this way, we aim to achieve profitable growth and take on social and environmental responsibility. This also helps to achieve the United Nations’ Sustainable Develop ment Goals (SDGs).1 We are focusing on issues where we as a company can make a significant contribution, such as sustainable consumption and production, climate protection or fighting hunger.

Goal areas along the value chain

Procurement Products and solutions

Growth and profitability; employees; safety in production; product stewardship; energy and climate protection; water

SUPPLIERS BASF CUSTOMERS

Procurement

2020 goalStatus at end of 2018 SDGs More on

Assessment of sustainability performance of relevant suppliers2; development of action plans where improvement is necessary

70% 60% SDG 8, 12, 16, 17

Page 90

2 Our suppliers are evaluated based on risk due to the size and scale of our supplier portfolio. We define relevant suppliers as Tier 1 suppliers showing an elevated sustainability risk potential as identified by our risk matrices and our purchasers’ assessments. We also use further sources of information to identify relevant suppliers such as evaluations from Together for Sustainability (TfS), a joint initiative of chemical companies for sustainable supply chains.

Growth and profitability

As determined in 2015, our aim was, on average, to grow sales slightly faster and EBITDA consider ably faster than global chemical production (excluding pharmaceuticals; 2018: 2.7%; average change since 2015: 3.3%), and to earn a significant premium on our cost of capital. Another goal was to achieve a high level of free cash flow each year, either raising or at least maintaining the dividend at the prior-year level.

For more information on our results of operations in 2018, see pages 46 to 50

For more information on our financial position in 2018, see pages 53 to 56

For a definition of “slight” and “considerable,” see Actual Development Compared with Outlook for 2018 on page 57

2018Changesince 2017

Average change since 20154

Sales3 €62.7 billion 2.4% 3.3%

EBITDA3 €9.2 billion (14.9%) 3.8%

Dividends per share paid out €3.10 €0.10

Premium on cost of capital €0.8 billion

Free cash flow €4.0 billion

3 The average change was calculated using the changes in the non-adjusted figures from 2015 to 2017 and the change in the adjusted figures from 2018 to 2017. This gives an approximate average change on a comparable basis in each case. However, the figures does not take into account the structural decline in sales and EBITDA due to the classification of the oil and gas business as a discontinued operation.

4 Baseline 2015: excluding the gas trading and storage business transferred to Gazprom

Employees

2021 goal Status at end of 2018 SDGs More on

Proportion of women in leadership positions with disciplinary responsibility

22–24% 21.7% SDG 5, 16 Page 112

Long-term goals

International representation among senior executives5

Increase in proportion of non-German senior executives (baseline 2003: 30%)

40.4% Page 112

Senior executives with international experience

Proportion of senior executives with international experience over 80%

85.4% Page 112

5 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.

1 Sustainable Development Goals (SDGs): SDG 1 – No poverty, SDG 2 – Zero hunger, SDG 3 – Good health and well-being, SDG 4 – Quality education, SDG 5 – Gender equality, SDG 6 – Clean water and sanitation, SDG 7 – Affordable and clean energy, SDG 8 – Decent work and economic growth, SDG 9 – Industry, innovation and infrastructure, SDG 10 – Reduced inequalities, SDG 11 – Sustainable cities and communities, SDG 12 – Responsible consumption and production, SDG 13 – Climate action, SDG 14 – Life below water, SDG 15 – Life on land, SDG 16 – Peace, justice and strong institutions, SDG 17 – Partnerships for the goals

For more information on the SDGs, see sustainabledevelopment.un.org

BASF Report 2018 24



Products and solutions


Increase the proportion of sales generated by products that make a substantial contribution to sustainable development (Accelerator products)

28% 27.7% SDG 3, 8, 9, 12, 13

Page 37

Business expansion in emerging markets

Sales2 in emerging markets

2018 35%

IndustrieländerSchwellenländer

65%

2008 29% 71%

• Emerging markets • Industrialized countries

2 Percentage of BASF Group sales by location of customer

Overall, growth in the emerging markets declined slightly in 2018. We define the emerging markets as Greater China, the ASEAN countries,3 India, Pakistan and Bangladesh; Central and South America; eastern Europe; the Middle East, Turkey and Africa. Momentum eased slightly in eastern Europe. The eastern E.U. countries continued to post dynamic growth, albeit slower than in the previous year. Russia’s output rose faster than in the previous year, buoyed by the comparatively high oil price and strong growth in the construction sector. In the emerging markets of Asia, which account for over 60% of the gross domestic product (GDP) of all emerging economies, growth declined slightly. The Chinese economy noticeably cooled, while India and Thailand saw stronger increases in economic output com-pared with the previous year. In South America, the economy darkened significantly as Argentina fell back into recession. Brazil continued its moderate recovery despite political uncertainty ahead of the presidential elections and production outages caused by strikes in the spring. Although growth slowed significantly in Turkey, the Middle East as a whole only recorded a slight decline. The oil-producing states benefited from rising oil prices. Growth remained more or less stable in Africa, too. The weaker trend in South Africa was offset by a marked upturn in Nigeria.

Compared with 2017, sales at our companies located in emerging markets rose by 2% to €17,144 mil-lion, largely as a result of higher sales prices and volumes. Measured by location of customer, we increased sales in the emerging markets by 1% to €21,799 million. This brought sales to customers in emerging markets to around 35% of total sales in 2018.

Safety in production


Reduction of worldwide lost-time injury rate per 200,000 working hours

≤0.1 0.3 SDG 3, 8 Page 96

Reduction of worldwide process safety incidents per 200,000 working hours

≤0.1 0.3 SDG 3, 12, 15 Page 97

Annual goal

Health Performance Index >0.9 0.96 SDG 3, 8 Page 98

Product stewardship


Risk assessment of products that we sell in quantities of more than one metric ton per year worldwide

>99% 91% SDG 3, 12 Page 100

Energy and climate protection


Coverage of our primary energy demand by certified energy management systems (ISO 50001) at all relevant sites1

90% 73.0% SDG 7, 12, 13, 14, 15

Page 105

Reduction of greenhouse gas emissions per metric ton of sales product (excluding the oil and gas business, baseline 2002)

(40%) (34.2%) SDG 12, 13, 14, 15

Page 104

1 The selection of relevant sites is determined by the amount of primary energy used and local energy prices; figures relate to BASF operations including the discontinued oil and gas business.

Water


Introduction of sustainable water management at all production sites in water stress areas and at all Verbund sites (excluding the oil and gas business)

100% 50.0% SDG 3, 6, 12, 14, 15

Page 108

3 Brunei, Indonesia, Malaysia, Myanmar, Cambodia, Laos, the Philippines, Singapore, Thailand, Vietnam

BASF Report 2018 25


Corporate Strategy

Our Strategy Corporate Strategy

At BASF, we are passionate about chemistry and our cus-tomers. Thanks to our expertise, our innovative and entrepre-neurial spirit, and the power of our Verbund integration, our innovations have decisively contributed to changing the world we live in for the better for more than 150 years. To be the world’s leading chemical company for our customers, we will grow profitably and add value to society. This is how we create chemistry for a sustainable future.

Today, the world is changing more rapidly than ever before, driven by demographic change and new digital technologies. Our cus-tomers in different industries and regions face diverse social and environmental challenges due to limited natural resources and increasing consumer demands. Chemistry is key to solving many of these challenges. By combining our unique expertise with our cus-tomers’ competence, we will jointly develop profitable, innovative and responsible solutions for these global trends.

Our purpose reflects what we do and why we do it: We create chemistry for a sustainable future. We pursue this purpose with our corporate strategy, which was updated in 2018. We want to con-trib ute to a world that provides a viable future with enhanced quality of life for everyone. This is why we offer products and solutions that make the best use of available resources.

Our aspiration is to be the world’s leading chemical company. With our updated corporate strategy, which was announced in Novem-ber 2018, we are targeting profitable growth. We aim to grow organ-ically and thus will strengthen our customer focus. The Asian market plays an important role in our growth strategy. With a share of more than 40%, China is already the largest chemical market and drives the growth of global chemical production. By 2030, China’s share will increase to nearly 50%, and we want to participate in this growth. To drive forward our growth in this dynamic market, we plan to build an integrated Verbund site in Zhanjiang in the southern Chinese province of Guangdong. We also want to expand our exist-ing joint venture with Sinopec in Nanjing.

As part of our aspiration to be the world’s leading chemical company for our customers, we want to strengthen our passion for customers throughout the entire organization. We want to grow profitably and create value for society. To achieve this, we have set ourselves ambi tious financial and nonfinancial targets.

Global trends provide opportunities for growth in the chemical industry

Demographic change:

Share of population aged 60 and over by 2050 +130% Population growth:

Driven by the emerging marketsby 2050 +32%China the largest market:

Share of global chemical market by 2030 ~50%

Digitalization:

Rapid growth involume of data 50

zettabytes by 2020

Climate change:

Required reduction of greenhouse gas emissionsto achieve the 2°C goal –70%

by 2050

Electromobility:

Growing demandfor battery materials by 2025 +300%

Sources: U.N., IEA, UBS Foresight, BASF

Corporate purposeWe create chemistry for a sustainable future

BASF Report 2018 26


Corporate Strategy

New targets from 2019 onward

Business success tomorrow means creating value for the environment, society and business. We have set ourselves new financial and nonfinancial targets so that our customers, investors, employees and other stakeholders can track our progress.

We want to grow faster than the market and thus be economically successful and profitable. Further-more, we want to provide answers to the most pressing challenges of our time. To combat climate change and global warming, we have committed ourselves to growing production volumes without adding further CO2 emissions until 2030. This means we will decouple greenhouse gas emissions from organic growth. We have also defined targets for a sustainable product portfolio, responsible procure-ment and engaged employees. Safety for people and the environment, inclusion of diversity and water management will remain a top priority.

The new targets will apply from 2019 onward and will replace our previous goals. In this way, we want to steer our business into a sustainable future and, at the same time, contribute to the implementation of the United Nations’ Sustainable Development Goals (SDGs).

1 Return on capital employed (ROCE) is a measure of the profitability of our operations. We calculate this indicator as the EBIT generated by the segments as a percentage of the average cost of capital basis.

2 Accelerator products are products that make a substantial sustainability contribution in the value chain.

3 We understand relevant spend as procurement volumes with suppliers defined as relevant. For more information, see page 90.

Financial targets Nonfinancial targets Existing nonfinancial targets

Grow sales volumes faster than global chemical production every year

Grow CO2-neutrally until 2030 Reduce the worldwide lost-time injury rate per 200,000 working hours to ≤ 0.1 by 2025

For more information, see pages 103 to 106 For more information, see pages 96 to 97

Increase EBITDA before special items by 3% to 5% per year

Achieve €22 billion in Accelerator sales2 by 2025

Reduce worldwide process safety incidents per 200,000 working hours to ≤ 0.1 by 2025


Achieve a return on capital employed (ROCE)1 considerably above the cost of capital percentage every year

Cover 90% of our relevant spend3 with sustainability evaluations by 2025, and have 80% of our suppliers improve their sustainability performance upon re-evaluation

Introduce sustainable water management at all production sites in water stress areas and at all Verbund sites by 2030


Increase the dividend per share every year based on a strong free cash flow

More than 80% of our employees feel that at BASF, they can thrive and perform at their best

Increase the proportion of women in leadership positions with disciplinary responsibility to 22–24% by 2021


BASF Report 2018 27


Corporate Strategy

1 We defined six strategic action areas in our updated corporate strategy, which was announced in November 2018. They build on the four strategic principles of the “We create chemistry” strategy – we add value as one company; we innovate to make our customers more successful; we drive sustainable solutions; we form the best team – according to global trends and challenges as well as their implications for BASF.

Action areas sharpen customer focus

OurCustomers

DigitalizationSus

tain

ab

ility Operations

Portfo

lioPeople

Innovation

Our strategic action areas

To reach our goals and be the leading company in the chemical industry for our customers, we want to strengthen our performance in innovation and in operations as the leading chemical producer and plant operator, leverage digital ways of working across the entire company, and integrate sustainability more deeply into our business decisions. We want to strengthen our passion for our customers in all employees. We aim to strengthen our portfolio and further develop our organization to better meet cus tomer needs using the power of our Verbund integration. We have defined six strategic action areas through which we will sharpen our customer focus.1

InnovationOur ambition is to be the most attractive partner for our customers whenever they are confronted with challenges that can be a pproached with chemistry. Our research and development com pe-tences are unique in the chemical industry. We aim to build on and leverage our position as a leading innovator to jointly develop inno-va tions for our customers. We will design our innovation chain to be as seamless as possible so that we can bring products to the market more quickly. This means fostering a higher level of excellence through out the entire innovation process, starting from the lab all the way to the customer.

For more information on innovation, see page 31 onward

SustainabilityWe are successful in the long term when our products, solutions and technologies add value to the environment, society and the economy. We want to be a thought leader in sustainability and increase the relevance of sustainability in our decision-making pro-cesses and business models. This secures the long-term success of

our company, creates business opportunities and establishes us as a key partner supporting our customers.

For more information on the integration of sustainability, see page 36 onward

OperationsWe are committed to running our production safely, efficiently and reliably so that we can deliver products to our customers on spec and on time. We aim to further improve the reliability and availability of our plants, as well as our agility. Above and beyond this, con tinu-ous process improvements and effective debottlenecking of our existing asset base are paramount to ensure our competitiveness.

For more information on operations, see page 96 onward

DigitalizationWe want to make digitalization an integral part of BASF’s business. This will create additional value for our customers, grow our busi-ness and improve efficiency. By promoting comprehensive digital skills among our future leaders and our entire workforce, we will ensure that the necessary resources are available.

For more information on digitalization, see pages 33 and 111

PortfolioWe will sharpen our portfolio and focus our capital allocation more towards growing business areas. We will focus primarily on organic growth through capital expenditures and innovation, but also make targeted acquisitions where this makes strategic sense and creates value. The new segment structure will create a higher transparency regarding the steering of our businesses, the importance of value chains and the role of our Verbund. The physical, technological, market and digital integration of the Verbund continues to be at the core of our portfolio and our unique strength.

For more information on our organization and the Verbund, see page 18 onward

EmployeesWe aim to clearly position each business against its relevant com-peti tors and establish a high-performance organization to enable us to be successful in an increasingly competitive market environment. We will adapt our business models and organizational structures so that each business unit can optimally serve its market segment. Our people

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