Integrated Report | BASF
Integrated corporate report on economic, environmental and social performance
BASF Report 2021 Integrated corporate report on economic, environmental and social performance
20 BASF Group 21 At a glance Greenhouse gas emissions Employees (million metric tons of CO Sales EBIT before special items ROCE equivalents) 2 Accelerator sales at year-end €78.6 billion €7.8 billion 13.5% 40.1 €24.1 billion 111,047 (2020: €59.1 billion) (2020: €3.6 billion) (2020: 1.7%) (2020: €16.7 billion) (2020: 110,302) 21.9 20.8 20.2 Sales by segment and Other Research and development Surface Technologies expenses Personnel expenses Chemicals €22.7 billion €13.6 billion (2020: €16.7 billion) (2020: €8.1 billion) €2.2 billion €11.1 billion Materials Nutrition & Care 1990 2018 2020 2021 (2020: €2.1 billion) (2020: €10.6 billion) €78.6 billion €6.4 billion €15.2 billion (2020: €59.1 billion) (2020: €6.0 billion) (2020: €10.7 billion) Industrial Solutions Agricultural Solutions €8.9 billion €8.2 billion (2020: €7.6 billion) (2020: €7.7 billion) Other €3.7 billion (2020: €2.4 billion) Sales and employees by region (by location of company) NORTH AMERICA SOUTH AMERICA, EUROPE ASIA PACIFIC Our journey to climate neutrality AFRICA, MIDDLE EAST Climate change calls for fast, decisive action. That is why we set ourselves even more ambitious climate protection targets in 2021: By 2030, we want to reduce the greenhouse gas emissions from our production sites and our energy purchases (Scope 1 and Scope 2) by 25% compared with 2018 – while 21.9 4.4 31.6 20.6 growing production volumes. We aim to achieve net zero Sales (billion €) Sales (billion €) Sales (billion €) Sales (billion €) emissions by 2050. To achieve these targets, we have set up comprehensive carbon management and created effective 16,753 6,786 67,532 19,976 structures for its implementation. Employees Employees Employees Employees For more information, see pages 27 and 126
BASF Report 2021 Welcome to BASF Our integrated corporate report combines financial and sustainability reporting. It shows how we are developing as a company and how we create value for our shareholders with what we do. On the cover and this page: BASF is one of the leading manufacturers of battery materials for electric vehicles and continues to invest in this important growth market. For example, we are building a new production plant for cathode materials in Schwarzheide, Germany, which will start operation in 2022. Both photos show Ina Homann. As an assistant process manager, her responsibilities include monitoring the progress of construction at her future workplace. After working in analytics and process optimization and obtaining further technical qualifications, she is now part of BASF’s team to help shape the future of climate-smart mobility. For more information on battery materials and electromobility, see weloveevs.basf.com
BASF Report 2021 4 Contents Contents To Our Shareholders Management’s Report Corporate Governance Consolidated Financial Statements Overviews About This Report 5 1 | To Our Shareholders 7 3 | Corporate Governance 161 5 | Overviews 286 Letter from the Chairman of the Board of Executive Directors 8 Corporate Governance Report 162 Ten-Year Summary 287 The Board of Executive Directors of BASF SE Glossary and Trademarks 289 11 Compliance 171 BASF on the Capital Market 12 Management and Supervisory Boards 174 Report of the Supervisory Board 177 Declaration of Conformity Pursuant to Section 161 AktG 184 2 | Management’s Report 16 Declaration of Corporate Governance 185 Overview 17 20 The BASF Group 4 | Consolidated Financial Statements 186 Our Strategy 26 Statement by the Board of Executive Directors 187 The BASF Group’s Business Year 52 Independent Auditor’s Report 188 Sustainability Along the Value Chain 96 Statement of Income 194 Forecast 145 195 Statement of Income and Expense Recognized in Equity Balance Sheet 196 Statement of Cash Flows 198 199 Statement of Changes in Equity Notes 200
BASF Report 2021 About This Report 5 About This Report GRI 102, 305 Integrated reporting and online services At a glance progress report on BASF’s implementation of the 10 principles of the This integrated report documents BASF’s economic, environmental U.N. Global Compact. and social performance in 2021. We show how sustainability con- ▪ Integrated BASF Report serves as U.N. Global Compact progress tributes to BASF’s long-term success as an integral part of our cor- report The GRI and Global Compact Index can be found in the online porate purpose and our strategy, and how we as a company create ▪ Nonfinancial reporting in accordance with HGB and additional report. It provides an overview of all relevant information to fulfill the value for our stakeholders. sustainability reporting in accordance with GRI GRI indicators and shows how we contribute to the United Nations’ ▪ Financial reporting in accordance with IFRS, HGB and GAS Sustainable Development Goals (SDGs) and the principles of the Symbols U.N. Global Compact. The results of the limited assurance of this ▪ Editorial deadline: February 21, 2022 gesell - information conducted by KPMG AG Wirtschaftsprüfungs You can find more information in this report. ▪ External audit by KPMG AG Wirtschaftsprüfungsgesellschaft schaft can also be found there. We also publish online additional information on sustainability in accordance with the industry-specific You can find more information online. The content of these requirements of the SASB. links are voluntary disclosures that were not audited by the auditor. Content and structure The information on the financial position and performance of the BASF Group comply with the requirements of International Financial The content of this section is not part of the statutory audit but The BASF Report, which is published each year in English and Reporting Standards (IFRS), and, where applicable, the German has undergone a separate limited assurance by our auditor. German, combines the major financial and sustainability-related Commercial Code (HGB), German Accounting Standards (GAS) and information necessary to comprehensively evaluate our performance. the guidelines on alternative performance measures from the Euro- The content of this section is voluntary, unaudited information, We select the report’s topics based on the following principles: pean Securities and Markets Authority (ESMA). Internal control which was critically read by the auditor. materiality, sustainability context, completeness, balance and stake- mechanisms ensure the reliability of the information presented in this holder inclusion. In addition to this report, we publish further informa- report. BASF’s Board of Executive Directors confirmed the effective- tion online. The relevant links can be found at the end of each chapter. ness of the internal control measures and compliance with the regu- lations for financial reporting. Our sustainability reporting has been based on Global Reporting Initiative (GRI) guidelines and standards since 2003. We have applied Material topics along the value chain form the focal points of report- the “Comprehensive” option since 2017. ing and define the limits of this report. We take three dimensions into account in identifying and evaluating material topics: the impact on We have been active in the International Integrated Reporting Council BASF, the impact of BASF and relevance for our stakeholders. (IIRC) since 2014 and have supported the work of the Value Report- For more information on our sustainability reporting, see from page 45 and 96 onward ing Foundation, formed by the merger of the IIRC and the Sustain- Our value creation based on the IIRC framework can be found on page 24 and in the online report ability Accounting Standards Board (SASB), since 2021. This involve- For more information on our control and risk management system, see page 151 onward ment gives us the opportunity to discuss our experiences of The 2021 BASF Online Report can be found at basf.com/report integrated reporting with stakeholders and at the same time, receive The GRI and Global Compact Index can be found at basf.com/en/gri-gc inspiration for enhancing our reporting. BASF’s report addresses ele- The SASB index can be found at basf.com/sasb ments of the IIRC framework by illustrating how we create value, for example. The information contained in this report also serves as a
BASF Report 2021 About This Report 6 Data reported in full. Unless otherwise indicated, data on social responsi- steering target in 2022. The links and additional content provided on bility and transportation safety refers to BASF SE and its consolidated linked internet sites are not part of the audited information. All information and bases for calculation in this report are founded subsidiaries. on national and international standards for financial and sustain- KPMG also conducted a limited assurance of the nonfinancial group ability reporting. The data and information for the reporting period The divested pigments business is included in the disclosures and statement (NFS). were sourced from the expert units responsible using representative indicators on employees, the environment, and health and safety on The Independent Auditor’s Report can be found on page 188 onward methods. Due to rounding, individual figures may not add up exactly a pro rata basis until June 30, 2021. Sales from the divested pig- An assurance statement on the sustainability information in the BASF Report 2021 can be found at to the totals shown and percentages may not correspond exactly to ments business are no longer integrated in the portfolio to be evalu- basf.com/sustainability_information the figures shown. ated under the Sustainable Solution Steering method for 2021. An assurance statement of the NFS can be found at basf.com/nfs-audit-2021 BASF Shanshan Battery Materials Co., Ltd., which was formed on The reporting period is the 2021 business year. Relevant information August 31, 2021, is included in the sustainability disclosures and Forward-looking statements and forecasts is included up to the editorial deadline of February 21, 2022. indicators on a pro rata basis. The company’s sales to third parties are already included in the sum of relevant sales according to This report contains forward-looking statements. These statements BASF Group’s scope of consolidation for its financial reporting com- the Sustainable Solution Steering method. They are listed as “not are based on current estimates and projections of the Board of prises BASF SE, with its headquarters in Ludwigshafen, Germany, assessed.” We will start classification in 2022. Executive Directors and currently available information. Forward- and all of its fully consolidated subsidiaries and proportionally con- For more information on companies accounted for in the Consolidated Financial Statements, see the looking statements are not guarantees of the future developments solidated joint operations. Shares in joint ventures and associated Notes from page 205 onward and results outlined therein. These are dependent on a number of companies are accounted for, if material, using the equity method in The list of shares held can be found at basf.com/en/corporategovernance factors; they involve various risks and uncertainties; and they are the BASF Group Consolidated Financial Statements and are thus based on assumptions that may not prove to be accurate. Such risk not included in the scope of consolidation. factors include those discussed in Opportunities and Risks on External audit pages 151 to 160. We do not assume any obligation to update the The section “Employees” refers to employees active in a company forward- looking statements contained in this report above and within the BASF Group scope of consolidation as of December 31, Our reporting is audited by a third party. KPMG AG Wirtschafts- beyond the legal requirements. 2021. prüfungsgesellschaft has audited the BASF Group Consolidated Financial Statements and the Management’s Report and has Our data collection methods for environmental protection and safety approved themn free of qualification. are based on the recommendations of the International Council of Chemical Associations (ICCA) and the European Chemical Industry The limited assurance of the sustainability information contained in Council (CEFIC). In the section “We Produce Safely and Efficiently,” the Management’s Report was conducted in accordance with we report all data of the worldwide production sites of BASF SE, its ISAE 3000 (Assurance Engagements other than Audits or Reviews fully consolidated subsidiaries, and proportionally consolidated joint of Historical Financial Information) and ISAE 3410 (Assurance operations. BASF SE subsidiaries that are fully consolidated in the Engagements on Greenhouse Gas Statements), the relevant inter- Group financial statements in which BASF holds an interest of less national assurance standards for sustainability reporting. KPMG than 100% are included in full in environmental reporting. The emis- conducted a reasonable assurance of all disclosures on the most sions of proportionally consolidated joint operations are disclosed important nonfinancial key performance indicators, accelerator pro rata according to our interest. Work-related accidents at all sites sales and CO emissions. The forecast for the key performance 2 of BASF SE and its subsidiaries as well as joint operations and joint indicator CO emissions is also part of the Management’s Report 2 ventures in which we have sufficient authority in terms of safety and is covered by the annual audit. No forecast has been made for management are compiled worldwide regardless of our interest and the previous Accelerator target as we plan to update our portfolio
BASF Report 2021 7 Contents To Our To Our Shareholders Management’s Report Corporate Governance Consolidated Financial Statements Shareholders Overviews 1 Letter from the Chairman of the Board of Executive 8 Directors 11 The Board of Executive Directors of BASF SE 12 BASF on the Capital Market
Letter from the Chairman of the Board of Executive Directors BASF Report 2021 To Our Shareholders – Letter from the Chairman of the Board of Executive Directors 8 At BASF, we have an ambitious dividend policy. Our free cash flow of €3.7 billion reflects our financial strength. Therefore, we will propose to the Annual Share- holders’ Meeting a dividend of €3.40 per share, representing an increase of 10 euro cents compared with the previous year. We want to be an attractive investment and reliably create value for you, our shareholders. The development of our share price in 2021 remained well below our expectations, despite our very good » operating performance and targeted strategic devel- At BASF, we have an op ment. Given that we believe that BASF is signifi- cantly under valued on the capital market, we decided ambitious dividend on January 4, 2022, to buy back own shares in the policy. amount of up to €3 billion. What makes us so confident about the value of BASF? What are our priorities for the transformation to climate neutrality and the further development of our company? As the largest chemical company in the world, we are leaders in our industry. We are ambitious. This applies especially to the transformation to climate neutrality. We want to show that this transformation and competitiveness are not mutually exclusive. Our global responsibility for sustainable development is anchored in our corporate purpose: We create chemistry for a sustainable future. 2021 was a very successful business year for BASF. Despite the ongoing coronavirus pandemic, widespread supply bottlenecks, and increasingly higher Effective climate protection and scarce resources are the central challenges energy and raw materials prices, we achieved record levels of sales and earnings. of our time. We want to reduce our CO2 emissions worldwide by 25% by 2030 We achieved an EBIT before special items of €7.8 billion. Our sales volumes were compared with 2018. Our 2050 target is net zero emissions. These are very five percentage points above the 6% growth in the global chemical industry and ambitious goals. It is the biggest transformation in the history of the chemical we raised prices by 25%. This enabled us to once again earn a premium on our industry and for BASF, considering that our production is energy intensive and cost of capital in 2021. Our economic development confirms that we are on the that we want to continue to grow at the same time. The energy transformation will right path with our strategic direction, our adapted organizational structure and make great demands on us. But we are confident that we will succeed! our ongoing cost discipline. We can only reach climate neutrality if we completely transform our production by replacing energy sources based on fossil fuels with electricity from renewable resources. That will require entirely new processes and technologies and the
BASF Report 2021 To Our Shareholders – Letter from the Chairman of the Board of Executive Directors 9 courage to think in new directions. It will involve converting the big steam CO -free chemical production is the future. And BASF wants to be among the 2 crackers from heating based on fossil fuels to electrical heating. In these plants, first there. It all starts with transparency, which is why we provide our custom ers at the beginning of the value chains, steam is used to split naphtha into basic with Product Carbon Footprints (PCF) – the carbon footprint associated with chemicals at about 850 degrees Celsius. Other production per kilogram of sales product – for each of our 45,000 sales products. examples include the CO -free production of hydro- Furthermore, we help our customers develop strategies to reduce their carbon » 2 With our innovation power, gen by water electrolysis and methane pyrolysis, and footprint, to use resources more efficiently, and to manufacture products in a using waste heat recovered with heat pumps instead more environmentally friendly way. We expect that demand for such emission-free crea tivity and entre pre of con ven tional steam generation in gas-fired power or emission-reduced products will exceed supply in the medium term, and that neurial courage, we look plants. We will invest roughly €4 billion to reach our their market value will more than compensate for the higher production costs. It 2030 emission reduction targets. therefore also makes good economic sense to take a leading role here. That is to the future with why we want to be among the first to provide as many products as possible from optimism. We are also redefining raw material cycles through our portfolio with a reduced carbon footprint in large volumes by the end of the recycling. Good examples of this are the chemical decade. This differentiates us, increases our competitiveness and enables growth recycling process in which a new raw material, above market. pyrolysis oil, is obtained from plastic waste; the recycling of mattresses, which are broken down into polyurethane precursors; and the use of bio-based raw Profitable growth lays the foundation for a success- materials. There is a great feeling of excitement in the BASF team! With our inno- ful transformation. This is why we continue to focus » vation power, creativity and entrepr eneurial courage, we look to the future with our portfolio and business activities on organic CO free chemical optimism. growth. And the reverse is also true: The transforma - 2 tion is the foundation for a wide range of growth production is the future. Electricity from renewable sources in great quantities and at favorable prices opportunities! Neither future prosperity nor climate And BASF wants to be would enable us to achieve a climate-neutral future. This is made possible by the neutrality is possible without a competitive chemical electrification of entire value chains. To achieve this, we need to massively expand industry and innovative chemical products. Extensive among the first there . renewable energies worldwide. Currently, this is not happening fast enough. That regulations driven by policymakers and society do is why we are leading the way and securing access to green power. We already present a tremendous challenge to industry in general announced several projects in 2021 as part of the implementation of our and particularly to the chemical industry. At the same time, however, they lead to Make & Buy strategy: We have secured a half share in a 1.5 gigawatt offshore new business opportunities. The dynamic development from the combustion wind park from Vattenfall in the North Sea off the coast of the Netherlands. It engine to electromobility is a good example of this. As a leading chemical supplier should be connected to the grid in 2023. It will be the world’s biggest offshore to the automotive industry and producer of innovative cathode active materials wind farm – and all this without any public subsidies. We are taking a different for electric vehicle batteries, we are able to profit from this development. Growth approach with Ørsted and Engie: We have concluded attractive electricity supply and climate protection go hand in hand: Our materials not only support the contracts with both energy companies for a term of 25 years. In other regions dynamic growth of this market, but their low carbon footprint also paves the way as well, for example, in the United States and China, we are securing access to for climate-neutral mobility. green power. In this way, we are planning proactively and laying the foundation to ensure a long-term supply of electricity from renewable resources.
BASF Report 2021 To Our Shareholders – Letter from the Chairman of the Board of Executive Directors 10 China is already the largest chemical market in the world and has high growth potential in the long term. With the construction of our new Verbund site in Zhanjiang in the southern Chinese province of Guangdong, we want to further accelerate our profitable growth in the region. We are setting new standards in energy transformation there as well. By taking advantage of a new regulatory framework and signing a supply agreement for electricity from renewable sources with China » Resources Power in June 2021, we will be able Climate neutrality and to operate the first plants at the new Verbund site in Zhanjiang completely with green power. sustainable resource use Sustainable solutions and innovative products are not possible without a across our entire portfolio enable us to remain on our growth path and systematically drive the competitive chemical transformation to greater sustainability. industry. We act swiftly and systematically in the imple- mentation of our long-term strategy for profitable growth. I am convinced that climate neutrality and sustainable resource use are not possible without a competitive chemical industry. Our company is very well positioned. We make our contribution to society and at the same time, secure our long-term competitiveness. I am pleased that you support us on our path to a sustainable future. Many thanks for your trust. Yours, Martin Brudermüller
BASF Report 2021 To Our Shareholders – The Board of Executive Directors of BASF SE 11 The Board of Executive Directors of BASF SE From left: Dr. Markus Kamieth, Saori Dubourg, Dr. Hans-Ulrich Engel (Vice Chairman of the Board of Executive Directors), Dr. Martin Brudermüller (Chairman of the Board of Executive Directors), Dr. Melanie Maas-Brunner, Michael Heinz Group photo taken in compliance with the applicable coronavirus prevention measures
BASF Report 2021 To Our Shareholders – BASF on the Capital Market 12 BASF on the Capital Market In 2021, the stock markets were characterized by a significant recovery of the global economy. This was due in particular to the approval and increasing availability of effective coronavirus vaccines. BASF stands by its ambitious dividend policy and will propose a dividend of €3.40 per share to the Annual Shareholders’ Meeting – an increase of 10 euro cents compared with the previous year. Based on the year-end share price for 2021, BASF shares offer a high dividend yield of around 5.5%. At a glance BASF share performance positive business performance. This was due to factors such as the composition of the segments’ earnings contributions. Share price ▪ BASF share price declines 4.5% in 2021 The BASF share closed the 2021 stock market year at €61.78, a development was also negatively impacted by market expectations ▪ Assuming that dividends were reinvested, BASF’s share decrease of 4.5% compared with the previous year’s closing price regarding the future development of margins in the basic chemicals performance rose by 0.2% (€64.72). business. BASF’s share price reached an annual high of €72.61 in March Assuming that dividends were reinvested, BASF’s share perfor- 2021 before declining over the course of the year despite continued mance rose by 0.2% in 2021. The benchmark indexes of the Change in value of an investment in BASF shares in 2021 Long-term performance of BASF shares compared with indexes With dividends reinvested; indexed Average annual increase with dividends reinvested 140 140 2016–2021 –2.4% 6.7% 130 130 8.0% 12.3% 120 120 2011–2021 5.7% 110 110 10.4% 8.9% 100 100 12.1% ▪ ▪ ▪ ▪ BASF share DAX 40 EURO STOXX 50 MSCI World Chemicals 90 90 80 80 Weighting of BASF shares in important indexes as of December 31, 2021 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec DAX 40 4.0% BASF share 0.2% DAX 40 15.8% EURO STOXX 50 23.3% MSCI World Chemicals 21.7% EURO STOXX 50 1.8% MSCI World Chemicals 4.6%
BASF Report 2021 To Our Shareholders – BASF on the Capital Market 13 Dividend per share Broad base of international shareholders € per share 3.20 3.30 3.30 3.40 With over 800,000 shareholders, BASF is one of the largest publicly 2.90 3.00 3.10 2.70 2.80 owned companies with a high free float. An analysis of the share- 2.50 2.60 holder structure carried out at the end of 2021 showed that, at around 19% of share capital, the United States and Canada made up the largest regional group of institutional investors. Institutional investors from Germany accounted for around 9%. Institutional investors from the United Kingdom and Ireland hold 6% of BASF shares, while investors from the rest of Europe hold a further 13% of capital. Approximately 39% of the company’s share capital is held 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 by private investors, nearly all of whom reside in Germany. BASF is therefore one of the DAX companies with the largest percentage of private shareholders. German and European stock markets – the DAX 40 and the Share buyback program of up to €3 billion EURO STOXX 50 – rose by 15.8% and 23.3% over the same period, Shareholder structure respectively. The global industry index MSCI World Chemicals In light of the positive business development and the gains on dives- By region, rounded gained 21.7%. titures in the course of 2021, the Board of Executive Directors of 6% BASF SE resolved on a share buyback program on January 4, 2022. United Kingdom/Ireland 19% The assets of an investor who invested €1,000 in BASF shares The program amounts to up to €3 billion, started on January 11, United States/Canada 13% at the end of 2011 and reinvested the dividends in additional 2022, and shall be concluded by December 31, 2023, at the latest, Rest of Europe BASF shares would have increased to €1,733 by the end of 2021. subject to a renewed authorization to repurchase own shares by the 4% This represents an average annual yield of 5.7%. Annual Shareholders’ Meeting of BASF SE on April 29, 2022. Rest of world BASF SE will cancel all repurchased shares and reduce the share 48% 10% capital accordingly. Germany Not identified Proposed dividend of €3.40 per share The share buyback program is based on the authorization by The Board of Executive Directors and the Supervisory Board will the Annual Shareholders’ Meeting of BASF SE on May 12, 2017 Employees becoming shareholders propose a dividend payment of €3.40 per share to the Annual authorizing the Board of Executive Directors to purchase up to 10% Shareholders’ Meeting. BASF stands by its ambitious dividend of the issued shares at the time of the resolution until May 11, 2022. In many countries, we offer share purchase programs that turn our policy of increasing the per-share dividend each year and plans to BASF plans to propose to the 2022 Annual Shareholders’ Meeting a employees into BASF shareholders. In 2021, for example, around pay out €3.1 billion1 to the shareholders of BASF SE. renewed authorization to buy back own shares. 23,600 employees (2020: around 27,600) purchased BASF shares worth €38.2 million (2020: €61.1 million). Based on the year-end share price for 2021, BASF shares offer a In addition to its progressive dividend policy, share buybacks are For more information on employee share purchase programs, see page 97 high dividend yield of around 5.5%. BASF is part of the DivDAX another tool that BASF uses to create value for its shareholders. share index, which contains the 15 companies with the highest dividend yield in the DAX 40. 1 Based on the number of outstanding shares as of December 31, 2021 (918,478,694)
BASF Report 2021 To Our Shareholders – BASF on the Capital Market 14 BASF – a sustainable investment how they reduce risks such as water scarcity. CDP also evaluates the companies with Leadership status, as for climate protection and the extent to which product developments can contribute to water management. sustainable water management for customers of the companies At a glance assessed. BASF continues to implement its sustainable water BASF maintained its Prime status in the ISS ESG rating developed ▪ CDP again awards BASF Leadership status management target at all relevant production sites (Verbund sites by Institutional Shareholder Services and is among the top 7% of and sites in water stress areas). the companies assessed. BASF received special recognition for ▪ BASF maintains “Prime” status in ISS ESG rating address ing key sustainability issues such as environmental man- ▪ BASF recognized as a Global Compact LEAD company BASF participated in the CDP’s “Forests” assessment for the sec- agement, energy efficiency and business ethics with a comprehen- ond time in 2021 and was ranked A–, as in the previous year. As a sive set of measures and processes. participant in various value chains, BASF is committed to ending BASF has participated in the program established by the interna- deforestation in these supply chains. Consequently, BASF is one of tional organization CDP (formerly the Carbon Disclosure Project) for reporting on data relevant to climate protection since 2004. CDP represents over 590 investors with over $110 trillion in assets and Key BASF share data more than 200 major organizations with $5.5 trillion in purchasing 2017 2018 2019 2020 2021 power. In 2021, BASF again scored an A– on CDP’s Climate List, giving it Leadership status. In the scoring framework used by CDP Year-end price € 91.74 60.40 67.35 64.72 61.78 in 2021, BASF was ranked among the top third of participating Year high € 97.46 97.67 74.49 68.29 72.61 chemical companies. Year low € 79.64 58.40 56.20 39.04 57.88 Year average € 88.16 80.38 64.77 53.31 66.20 BASF was rated A– in the CDP assessment for sustainable water management. The assessment takes into account how transpar - ently companies report on their water management activities and Daily trade in sharesa million € 185.7 229.6 187.6 219.2 170.8 million shares 2.1 2.9 2.9 4.1 2.6 Further information on BASF stock Number of shares December 31 million shares 918.5 918.5 918.5 918.5 918.5 Securities code numbers Market capitalization December 31 billion € 84.3 55.5 61.9 59.4 56.7 Germany BASF11 United States (CUSIP number) 055262505 Earnings per share € 6.62 5.12 9.17 –1.15 6.01 ISIN International Securities Identification Number DE000BASF111 Adjusted earnings per share € 6.44 5.87 4.00 3.21 6.76 Dividend per share € 3.10 3.20 3.30 3.30 3.40 International ticker symbols Dividend yieldb % 3.38 5.30 4.90 5.10 5.50 Deutsche Börse BAS Payout ratio % 47 63 36 . 57 Pink Sheets / OTCQX BASFY (ADR) Price-earnings ratio (P/E ratio)b 13.9 11.8 7.3 . 10.3 Bloomberg (Xetra trading) BAS GY a Average, Xetra trading Reuters (Xetra trading) BASFn.DE b Based on year-end share price
BASF Report 2021 To Our Shareholders – BASF on the Capital Market 15 1 In Sustainalytics’ ESG Risk Ratings, BASF is ranked among the top Close dialog with the capital market At a virtual Investor Update in September 2021, Dr. Martin 10% of companies in diversified chemicals. It was commended for Brudermüller and Dr. Markus Kamieth informed investors about the fact that its sustainability targets are reflected in the compensa- the BASF Group’s two major growth projects: our future Verbund tion for the Board of Executive Directors, underlining strong overall At a glance site in Zhanjiang, China, and our battery materials activities. management of environmental, social and governance matters. ▪ Virtual formats facilitate dialog during coronavirus pandemic Finally, Dr. Melanie Maas-Brunner offered analysts and investors an BASF was again recognized as a Global Compact LEAD company ▪ Capital Markets Day in March 2021, Investor Update in insight into the BASF Group’s research and development in Decem- by the U.N. Global Compact in 2021. BASF consistently supports September 2021 and R&D Webcast in December 2021 ber 2021. In a webcast, she presented, among other topics, contri- the U.N. Global Compact and its 10 principles of responsible busi- butions of research to sustainability in the field of electromobility. ness conduct and the Sustainable Development Goals. Our corporate strategy aims to create long-term value. We support this strategy through regular and transparent communication with Analysts and investors have confirmed the quality of our financial BASF was among the top 10% in the World Benchmarking Alliance’s the capital market. In light of the coronavirus pandemic, we almost market communications. For instance, we were again named “Best (WBA) Food and Agriculture Benchmark, which assessed 350 com- exclusively used virtual formats such as video or conference calls for IR” in the materials sector in the annual survey conducted by Britain’s panies from the food and agricultural sector on sustainable business dialog in 2021. We engage with institutional investors and rating IR Magazine. practices. agencies in numerous one-on-one meetings, as well as at road- For more information about BASF stock, see basf.com/share For more information on the key sustainability indexes, see basf.com/sustainabilityindexes shows and conferences worldwide, and give private investors an For more information on the 2022–2023 share buyback program, see basf.com/sharebuyback For more information on energy and climate protection, see page 126 onward insight into BASF at informational events. For more information on the Capital Markets Day 2021, see basf.com/CMD21 For more information on air and soil, see page 133 For more information on the Investor Update 2021, see basf.com/investor-update For more information on the procurement of certified palm oil and palm kernel oil, see page 112 In March 2021, Dr. Martin Brudermüller presented our path and our For more information on the R&D Webcast 2021, see basf.com/rd-webcast-2021 onward ambitious climate neutrality targets at a virtual Capital Markets Day. Register for the newsletter with current topics and dates at basf.com/share/newsletter BASF aims to achieve net zero CO emissions2 by 2050. Based on Contact the Investor Relations team by phone at +49 621 60-48230 or email [email protected] 2 Analysts’ recommendations its progress in developing low-emission and carbon-free technolo- gies, BASF is also setting an ambitious medium-term 2030 target Around 30 financial analysts regularly publish studies on BASF. The for reductions in greenhouse gas emissions: BASF now wants to latest analyst recommendations for our shares as well as the reduce its greenhouse gas emissions worldwide by 25% compared average target share price ascribed to BASF by analysts can be with 2018 – and to achieve this despite targeted growth and the found online at basf.com/analystestimates. construction of a large Verbund site in Zhanjiang, China. Dr. Markus Kamieth and Saori Dubourg also presented the Industrial Solutions and Nutrition & Care segments in more detail during the virtual Capital Markets Day. 1 Sustainalytics provides institutional investors and companies with ESG and corporate governance research, ratings and analytics. 2 Based on the BASF Group’s Scope 1 and Scope 2 emissions; other greenhouse gases are converted into CO equivalents in accordance with the Greenhouse Gas Protocol 2
BASF Report 2021 16 Contents Management’s To Our Shareholders Management’s Report Corporate Governance Consolidated Financial Statements Report Overviews 2 Overview 17 The BASF Group’s Business Year 52 Sustainability Along the Value Chain 96 Nonfinancial Statement Disclosures 18 Economic Environment 52 We Value People and Treat Them with Respect 97 TCFD Recommendations Index 19 Results of Operations 56 Responsible Procurement 109 Net Assets 61 Safe and Efficient Production 117 The BASF Group 20 Financial Position 63 Sustainable Solutions 141 How We Create Value 24 Actual Development Compared With Outlook for 2021 67 Forecast 145 Our Strategy 26 Business Review by Segment 69 Economic Environment in 2022 145 Chemicals 72 Our Strategic Action Areas 28 Outlook 2022 148 Materials 76 Our Values and Global Standards 31 Opportunities and Risks 151 Industrial Solutions 79 Business Models of the Segments 33 Surface Technologies 82 Targets and Target Achievement 2021 36 Nutrition & Care 85 Material Investments and Portfolio Measures 38 ricultural Solutions Ag 88 Our Steering Concept 42 Other 92 Our Sustainability Concept 45 Non-Integral Oil and Gas Business 93 Innovation 49 Regional Results 94 E.U. Taxonomy 95
BASF Report 2021 Management’s Report – Overview 17 Overview share of the Group’s taxonomy-eligible sales, investments (including Directors and the Supervisory Board (excluding the disclosures acquisitions) and operating expenses for the 2021 business year required by takeover law in accordance with section 315a HGB), relating to the environmental objectives of “climate change miti- compliance reporting and the Declaration of Conformity pursuant to The Management’s Report comprises the chapter of the gation” and “adaptation to climate change.” section 161 of the German Stock Corporation Act. Pur suant to same name on pages 16 to 160, as well as the disclosures section 317(2) sentence 6 HGB, the auditor checked that the disclo- required by takeover law and the Declaration of Corporate Within the scope of the annual audit, KPMG checked pursuant to sures according to section 315d HGB were made. Governance, which are presented in the Corporate Gover- section 317(2) sentence 4 HGB that the NFS was presented in nance chapter. The Nonfinancial Statement (NFS) is integrated accordance with the statutory requirements. KPMG also conducted into the Management’s Report. a limited assurance of the NFS. An assurance statement of the Compensation Report limited assurance can be found online at basf.com/nfs-audit-2021. The assurance was conducted in accordance with ISAE 3000 The Compensation Report is no longer a component of the Nonfinancial Statement (NFS) in accordance with (Assurance Engagements other than Audits or Reviews of Historical Management’s Report. The Compensation Report in accordance sections 315b and 315c of the German Commercial Code Financial Information) and ISAE 3410 (Assurance Engagements on with section 162 of the German Stock Corporation Act (AktG) and (HGB) Greenhouse Gas Statements), the relevant international assurance the assurance statement of the substantive and formal audit issued standards for sustainability reporting. by the auditor have been made publicly available on the BASF The NFS disclosures can be found in the relevant sections of the website at basf.com/compensationreport. Management’s Report and have been prepared in accordance with the appropriate frameworks: the Global Reporting Initiative Stan- Disclosures required by takeover law in accordance with dards (“Comprehensive” application option) and the reporting section 315a HGB Content and structure of the Management’s Report requirements of the U.N. Global Compact. The disclosures required by takeover law in accordance with sec- An overview of the segments’ business models is provided in a The table on the following page shows the sections and subsections tion 315a of the German Commercial Code (HGB) can be found in separate chapter. Material investments and portfolio measures by in which the individual disclosures can be found. In addition to a the Corporate Governance chapter starting on page 161. They form our segments have also been integrated into the chapter of the description of the business model, the NFS includes disclosures on part of the Management’s Report, which is audited as part of the same name. This improves the clarity of the information on our the following matters, to the extent that they are required to under- annual audit. segments. stand the development and performance of the business, the Group’s position and the impact of business development on the following matters: Consolidated Declaration of Corporate Governance in Recommendations of the Task Force on Climate-related accordance with section 315d HGB in connection with Financial Disclosures – Environmental matters section 289f HGB – Employee-related matters BASF supports the recommendations of the Task Force on Climate- – Social matters The Consolidated Declaration of Corporate Governance in accor- related Financial Disclosures (TCFD). Disclosures recommended by – Respect for human rights dance with section 315d HGB in connection with section 289f HGB the TCFD are presented in a number of places throughout this – Anti-corruption and bribery matters can be found in the Corporate Governance chapter from page 185 report. The table on page 19 shows the sections and subsections in onward and is a component of the Management’s Report. It com- which the relevant information can be found. The table is divided In accordance with the E.U. Taxonomy Regulation and the supple- prises the Corporate Governance Report including the description into four key areas in line with the TCFD recommendations: gover- mentary delegated acts, the NFS includes, for the first time, the of the diversity concept for the composition of the Board of Exe cu tive nance, strategy, risk management, and metrics and targets.
BASF Report 2021 Management’s Report – Overview 18 Nonfinancial Statement (NFS) disclosures in the relevant chapters of the integrated report NFS disclosure Topics Concepts and results Business model BASF Group Pages 20–25 E.U. taxonomy E.U. taxonomy Page 95 Environmental matters Process safety Page 37 (targets) / pages 117 and 119–120 (targets, measures, results) Biodiversity Pages 138–140 (targets, measures, results) Energy and climate protection Page 36 (targets) / pages 117 and 126–132 (targets, measures, results) Emergency response and corporate security Pages 117 and 121 (targets, measures, results) Supplier management Page 37 (targets) / pages 109–111 (targets, measures, results) Emissions to air Pages 117 and 133 (targets, measures, results) Product stewardship Pages 117 and 123–124 (targets, measures, results) Resource efficiency Pages 44, 133 and 142 (targets, measures, results) Steering of product portfolio Page 36 (targets) / pages 45 and 141 (targets, measures, results) Transportation and storage Pages 117 and 125 (targets, measures, results) Management of waste and contaminated sites Pages 44 and 133–134 (targets, measures, results) Water Page 37 (targets) / pages 117 and 135–137 (targets, measures, results) Employee-related matters Occupational safety Page 37 (targets) / pages 117 and 119 (targets, measures, results) Dialog with employee representatives Page 103 (targets, measures, results) Inclusion of diversity Page 37 (targets) / page 99 (targets, measures, results) What we expect from our leaders Page 98 (targets, measures, results) Health protection Pages 117 and 120 (targets, measures, results) International labor and social standards Page 103 (targets, measures, results) Learning and development Page 101 (targets, measures, results) Supplier management Page 37 (targets) / pages 109–111 (targets, measures, results) Employee engagement Page 37 (targets) / page 98 (targets, measures, results) Competition for talent Page 100 (targets, measures, results) Compensation and benefits Page 102 (targets, measures, results) Social matters Societal engagement Pages 48 and 106–107 (targets, measures, results) Respect for human rights International labor and social standards Page 103 (targets, measures, results) Supplier management Page 37 (targets) / pages 109–111 (targets, measures, results) Responsibility for human rights Pages 104–105 (targets, measures, results) Anti-corruption and bribery matters Compliance Pages 171–173 (targets, measures, results) Supplier management Page 37 (targets) / pages 109–111 (targets, measures, results)
BASF Report 2021 Management’s Report – Overview 19 Recommendations of the Task Force on Climate-related Financial Disclosures in the relevant chapters of the integrated report Topic Recommended disclosures Section/explanation Page Governance Describe the board’sa oversight of climate-related risks and opportunities. Corporate Governance Report – Direction and management by the Board of Executive Directors Pages 162–163 Report of the Supervisory Board Pages 177–183 Disclose the organization’s governance around climate-related risks and opportunities. Describe management’sb role in assessing and managing climate-related Our Sustainability Concept – Our organizational and management structures Page 46 risks and opportunities. Strategy Describe the climate-related risks and opportunities the organization has Energy and Climate Protection – Strategy Pages 126–127 identified over the short, medium, and long term. Opportunities and Risks – Operational opportunities and risks Pages 154–158 Disclose the actual and potential impacts of Opportunities and Risks – Strategic opportunities and risks Pages 158–160 climate-related risks and opportunities on the organization’s businesses, strategy, and financial Describe the impact of climate-related risks and opportunities on We Drive Sustainable Solutions – Steering Our Product Portfolio Pages 141–142 planning where such information is material. the organization’s businesses, strategy, and financial planning. Opportunities and Risks – Operational opportunities and risks Pages 154–158 Opportunities and Risks – Strategic opportunities and risks Pages 158–160 Describe the resilience of the organization’s strategy, taking into Opportunities and Risks – Risk management process Pages 152–154 consideration different climate-related scenarios, including a 2°C or Opportunities and Risks – Strategic opportunities and risks Pages 158–160 lower scenario. Risk management Describe the organization’s processes for identifying and assessing Opportunities and Risks – Risk management process Pages 152–154 climate- related risks.c Disclose how the organization identifies, assesses, and manages climate-related Describe the organization’s processes for managing climate-related risks. Opportunities and Risks – Risk management process Pages 152–154 risks. Opportunities and Risks – Strategic opportunities and risks Pages 158–160 Describe how processes for identifying, assessing, and Opportunities and Risks – Risk management process Pages 152–154 managing climate-related risks are integrated into the organization’s overall risk management. Metrics and targets Disclose the metrics used by the organization to assess climate-related Energy and Climate Protection – Global targets and measures Pages 128–129 risks and opportunities in line with its strategy and risk management Water – Global target and measures Page 136 Disclose the metrics and targets used to process. We Drive Sustainable Solutions – Steering Our Product Portfolio Pages 141–142 assess and manage relevant climate-related risks and opportunities where such information Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas Energy and Climate Protection – Strategy Pages 126–127 is material. (GHG) emissions, and the related risks. Energy and Climate Protection – Global targets and measures Pages 128–129 Describe the targets used by the organization to manage climate-related Energy and Climate Protection – Strategy Pages 126–127 risks and opportunities and performance against targets. Water – Strategy Page 135 We Drive Sustainable Solutions – Steering Our Product Portfolio Pages 141–142 a Refers to the Supervisory Board b Refers to the Board of Executive Directors and senior executives c Climate-related risks are identified, assessed and managed as part of the general risk management process.
BASF Report 2021 Management’s Report – BASF Group 20 BASF Group GRI 102, 201, 202, 203, 301 At BASF, we create chemistry for a sustainable future. We combine economic success with environmental protection and social r esponsibility. Around 111,000 employees contribute to the success of our customers in nearly all sectors and almost every country in the world. Our portfolio is divided into the Chemicals, Materials, Industrial Solutions, Surface Technologies, Nutrition & Care and Agricultural Solutions segments. Sites and Verbund The BASF Group’s segments in 2021 BASF has companies in 90 countries. We operate six V erbund sites and 232 additional production sites worldwide. Our Verbund site in Ludwigshafen, Germany, is the world’s largest integrated chemical complex owned by a single company. The Verbund concept was developed and optimized here and later applied to other sites around the world. Construction of the first plants continued at our planned new smart Verbund site in Chemicals Materials Industrial Solutions Zhanjiang, China. The Chemicals segment consists of the Petrochemi- The Materials segment is composed of the Perfor- The Industrial Solutions segment consists of the cals and Intermediates divisions. The segment mance Materials and Monomers divisions. The seg- Dispersions & Resins and the Performance Chemi- supplies BASF’s other segments and third-party ment offers advanced materials and their precursors cals divisions. The segment develops and markets The Verbund system is one of BASF’s great strengths. We add value cus tomers with basic chemicals and intermediates. for the plastics and plastics processing industries. ingredients and additives for industrial applications. by using our resources efficiently. The Production Verbund intelli- ▪ Share of sales: 17% ▪ Share of sales: 19% ▪ Share of sales: 11% gently links production units and their energy supply so that, for ▪ R&D expenses: €97 million ▪ R&D expenses: €193 million ▪ R&D expenses: €175 million 1 1 1 example, the waste heat of one plant provides energy to others. ▪ Investments including acquisitions : €1,157 million ▪ Investments including acquisitions : €709 million ▪ Investments including acquisitions : €361 million Furthermore, one facility’s by-products can serve as feedstocks 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 Verbund principle for more than produc- tion, applying it for technologies, the market and digitalization as well. Expert knowledge is pooled in our global research. For more information on the Verbund concept, see basf.com/en/verbund Surface Technologies Nutrition & Care Agricultural Solutions The Surface Technologies segment comprises the The Nutrition & Care segment comprises the Care The Agricultural Solutions segment is an integrated Catalysts and Coatings divisions. The segment Chemicals division and the Nutrition & Health provider of seeds, crop protection and digital offers chemical solutions for surfaces such as division. The segment produces ingredients and technologies and solutions. battery materi als and automotive coatings. solutions for consumer applications such as nutrition and personal care. ▪ Share of sales: 29% ▪ Share of sales: 8% ▪ Share of sales: 11% ▪ R&D expenses: €296 million ▪ R&D expenses: €172 million ▪ R&D expenses: €904 million 1 1 1 ▪ Investments including acquisitions : €1,469 million ▪ Investments including acquisitions : €654 million ▪ Investments including acquisitions : €347 million 1 Additions to property, plant and equipment and intangible assets
BASF Report 2021 Management’s Report – BASF Group 21 Organization of the BASF Group unit will continue to be globally positioned with research centers in Europe, North America and Asia Pacific. We take a differentiated approach to steering our businesses according to market-specific requirements and the competitive Five service units provide competitive services for the operating divi- environment. We provide a high level of transparency around the sions and sites: Global Engineering Services, Global Digital Services, results of our segments and show the importance of the Verbund Global Procurement, European Site & Verbund Management, Global and value chains to our business success. BASF aims to differen- Business Services (finance, human resources, environmental pro- tiate its businesses from their competitors and establish a high- tection, health and safety, intellectual property, communications, performance organization to enable BASF to be successful in an procurement, supply chain and inhouse consulting services). increasingly competitive market environment. Following the bundling of services and resources and the imple- The operating divisions, the service units, the regions and the corpo- mentation of a wide-ranging digitalization strategy, the number of rate center form the cornerstones of the BASF organization, in line employees in the Global Business Services unit worldwide will with the corporate strategy. As part of the implementation of our decline by up to 2,000 by the end of 2022 compared with base- strategy, we streamlined our administration, sharpened the roles line 2019. From 2023 onward, the division expects to achieve of services and regions, and simplified procedures and processes. annual cost savings of over €200 million. The organizational realignment created the conditions for greater customer proximity, increased competitiveness and profitable The Corporate Center supports the Board of Executive Directors in growth. steering the company as a whole. These include central tasks from the following areas: strategy, finance and controlling, compliance The divisions bear strategic and operational responsibility here and and law, tax, environmental protection, health and safety, human are organized according to sectors or products. They manage the resources, communications, investor relations and internal audit. 50 global and regional business units and develop strategies for 75 strategic business units. Our Excellence Program aimed to contribute €2 billion to EBITDA annually until the end of 2021 onward compared with baseline 2018. The regional and country units represent BASF locally and support We met this target in 2021. As planned, this was partly due to the the growth of business units with local proximity to customers. For reduction of more than 6,000 positions worldwide until the end of financial reporting purposes, we organize the regional divisions into 2021. This decrease resulted from the organizational simplification four regions: Europe, North America, Asia Pacific, and South America, and from efficiency gains in administration, the service units and the Africa and Middle East. operating divisions. For more information on the products and services offered by the segments, see pages 72, 76, 79, 82, Our research is currently divided into three global divisions: Process 85 and 88 onward Research & Chemical Engineering, Advanced Materials & Systems For more information on the segment structure, see Note 5 to the Consolidated Financial Statements from page 213 onward Research and Bioscience Research. To strengthen our innovation capabilities, we will reorganize our global research activities in 2022 and align them even more closely with the needs of our customers. To this end, we will integrate downstream research into the divisions and bundle activities with broad relevance in a research unit. This
BASF Report 2021 Management’s Report – BASF Group 22 BASF sites Florham Park Nanjing Geismar Zhanjiang Freeport Hong Kong Kuantan São Paulo The map shows the production sites and research and development sites Antwerp of the BASF Group according to the scope of consolidation for this report. Sites not shown on the map include office and warehouse locations as well as sites of companies outside the scope of consolidation. Ludwigshafen Verbund sites / planned Verbund site Research and development sites Production sites Regional centers
BASF Report 2021 Management’s Report – BASF Group 23 BASF sales by region 2021 BASF sales by industry 2021 Corporate legal structure Location of customer Direct customers 7% As the publicly listed parent company of the BASF Group, BASF SE South America, Africa, > 20% Chemicals and plastics | Transportation (respectively) takes a central position: Directly or indirectly, it holds the shares in Middle East 39% 10%–20% Agriculture | Consumer goods (respectively) the companies belonging to the BASF Group, and is also one of Europe Construction | Electronics | Energy and resources | Health and the largest operating companies. The majority of Group companies €78,598 million < 10% nutrition (respectively) 27% cover a broad spectrum of our business. In the BASF Group Con- Asia Pacific solidated Financial Statements, 258 companies including BASF SE 27% are fully consolidated. We consolidate nine joint operations on a North America Business and competitive environment proportional basis and account for 27 companies using the equity method. BASF’s global presence means that it operates in the context For more information, see Note 2 to the Consolidated Financial Statements from page 205 onward Procurement and sales markets of local, regional and global developments and a wide range of conditions. These include: 1 BASF supplies products and services to around 90,000 customers – Global economic environment from various sectors in almost every country in the world. Our cus- – Legal and political requirements (such as European Union regula- tomer portfolio ranges from major global customers and small and tions) medium-sized enterprises to end consumers. – International trade agreements – Industry standards 2 We work with over 70,000 Tier 1 suppliers worldwide. They supply – Environmental agreements (such as the E.U. Emissions Trading us with important raw materials, chemicals, investment goods and System) consumables, and perform a range of services. Important raw – Social aspects (such as the U.N. Universal Declaration of Human materials (based on volume) include naphtha, liquid gas, natural Rights) gas, benzene and caustic soda. For more information on customers, see page 28 onward; for more information on suppliers, see BASF holds one of the top three market positions in around 80% page 109 onward of the business areas in which it is active. Our most important global competitors include Arkema, Bayer, Clariant, Corteva, Covestro, Dow, Dupont, DSM, Evonik, Huntsman, Lanxess, SABIC, Sinopec, Solvay, Sumitomo Chemical, Syngenta, Wanhua and many hundreds of local and regional competitors. We expect com- petitors from Asia and the Middle East in particular to continue to grow in significance in the years ahead. 1 The number of customers refers to all external companies (sold-to parties) that had contracts with the BASF Group in the business year concerned under which sales were generated. 2 BASF considers all direct suppliers of the BASF Group in the business year concerned as Tier 1 suppliers. These are suppliers that provide us with raw materials, investment goods, consumables and services. Suppliers can be natural persons, companies or legal persons under public law.
BASF Report 2021 Management’s Report – How We Create Value 24 How We Create Value 1 3 Inputs Outputs 2 Business The following overview provides examples of how we create value for our stakeholders. model It is modeled on the framework of the International Integrated Reporting Council (IIRC). 5 4 The content of the graphic has been audited within the scope of the relevant sections of Discover the interactive How We Create Value graphic in the Impact Outcomes the Management’s Report in which they appear. BASF Online Report at basf.com/how-we-create-value Inputs 1 Financial Innovation Operations Environment Employees Partnerships Our aim is to ensure solvency, We develop innovative Safety, quality, and reliability We use natural resources to Everything we do is based Trust-based relationships We use a wide range of limit financial risks and optimize solutions for and with our are key to excellence in our manufacture products and on the expertise, knowledge, are crucial to our license to resources to implement our the cost of capital. customers to expand our production and plant operations. solutions with high value added motivation and conduct of operate and our reputation. customer-focused strategy leading position. for our customers. our employees. €87.4 billion ~10,000 €3.4 billion 1.3 million metric tons 111,047 ~280 Total assets R&D employees Capex Renewable raw materials Employees around the world Research collaborations 3 48.2% €2.2 billion ~60 million MWh 1,695 million m €11.1 billion >70,000 Equity ratio R&D expenses Electricity and steam demand Total water usage Personnel expenses Suppliers Business model 2 Corporate purpose Our targets How we operate We create chemistry ▪ Profitable growth ▪ Our customers are at the core of our strategy. We implement our for a sustainable future ▪ Effective climate protection ▪ Sustainability and innovation is at the center of everything we do and a driver for growth and value. corporate purpose ▪ Product portfolio geared to innovation and sustainability ▪ Safety is always our number one priority. ▪ Responsible procurement ▪ BASF’s Verbund structure is the backbone of our efficient and reliable production. ▪ Resource-efficient and safe production ▪ Our six segments are aligned with value chains and address customer needs with differentiated solutions ▪ Employee engagement and diversity and business strategies. ▪ We have a global, customer-focused presence. ▪ Effective corporate governance ensures responsible conduct. ▪ We value our stakeholders and treat them with respect.
Outputs 3 Financial Innovation Operations Environment Employees Partnerships We focus on material €78.6 billion ~820 ~45,000 47.0% 25.6% 787 sustainability topics and Sales New patents worldwide Sales products Share of our waste recycled or Women in leadership positions Suppliers screened through evaluate the opportunities and thermally recovered Together for Sustainability risks of our actions €7.8 billion €24.1 billion 7.3 million metric tons 78.5% 82% 77 EBIT before special items Accelerator sales CO avoided by the Verbund Water demand Engagement index according to Internal audits on our 2 and combined heat and power generation recirculated 2020 employee survey compliance standards 1 Outcomes 4 Economic Environmental Social We aim to increase our positive contributions, minimize negative We make positive contributions by We make positive contributions by creating products that We make positive contributions because we impacts and carefully assess ▪ Driving forward growth, progress and value creation ▪ Contribute to climate protection ▪ Offer products that improve people’s quality of life conflicting goals ▪ Strengthening our customers’ competitiveness and innovative ▪ Conserve resources, avoid waste and strengthen circularity ▪ Provide attractive jobs and promote diversity strength ▪ Pave the way for climate-friendly mobility ▪ Pay taxes and competitive wages and salaries ▪ Accelerating the digital transformation of the industry ▪ Are environmentally friendly and safe to use ▪ Promote integration and help overcome social challenges ▪ Offering our investors an attractive dividend yield Potential negative impacts Negative impacts Potential negative impacts ▪ Weaker growth stimulus due to the coronavirus pandemic, the ▪ The emission of CO and other gases that affect the climate ▪ Risk of violation of labor, environmental and social standards 2 ongoing trade conflict between the United States and China, ▪ Resource consumption and non-recyclable waste in the production of the raw materials we procure and an escalation of geopolitical conflicts ▪ Potential misuse or spillage of products ▪ Lower demand for employees in some areas ▪ A weaker share performance Our countermeasures Our countermeasures Our countermeasures ▪ Disciplined implementation of our corporate strategy ▪ Carbon management ▪ Careful selection, evaluation and development of suppliers ▪ Active portfolio management ▪ Circular Economy Program ▪ Projects to improve sustainability in the supply chains ▪ Systematic cost management ▪ Sustainable water and energy management ▪ Compliance Program and Code of Conduct ▪ Optimizing the cost of capital ▪ Responsible Care management (including product stewardship) ▪ Employee training program Impact We achieve long-term business success by creating value for our shareholders, our company, 5 the environment and society (see page 47 and basf.com/en/value-to-society) 1 The outcomes category shows examples of positive contributions as well as negative impacts and the measures we take to mitigate them.
Our Strategy BASF Report 2021 Management’s Report – Our Strategy 26 Our Strategy In this section: Strategic Action Areas GRI 102 Values and Global Standards Chemistry is our passion. As an industry leader, we want to be the most attractive partner for challenges that can be solved Business Models of the Segments with chemistry. That is why our customers are at the center of everything we do. We want to grow profitably and at the same Targets and Target Achievement 2021 time, create value for society and the environment. We help to change the world for the better with our expertise, our innovative Investments and Portfolio Measures and entrepreneurial spirit, and the power of our Verbund integration. This is our goal, embedded in our corporate purpose: Steering Concept We create chemistry for a sustainable future. Sustainability Concept Innovation The world is changing at a rapid pace – more and more urgently We also see these disruptive changes as an opportunity. As the Good to know than ever, solutions are needed for a more sustainable future. world’s largest chemical company, we want to lead the way and Chemistry plays a key role here. In almost all areas of life, it can help actively and responsibly shape the change. That is why we are overcome pressing global challenges with innovative products gradually switching our energy and raw material supplies to renew- and technologies – from climate change and using resources more able sources. We are strengthening our Verbund structure as the sparingly to feeding the world’s population. This belief is expressed basis for resource-efficient, safe and reliable production. We are in our corporate purpose and is what motivates us day in and day developing pioneering low-carbon production processes for our out: We create chemistry for a sustainable future. products. We are accelerating our innovation processes and deep- ening cooperation with partners to develop high-performance Our corporate purpose products that also require fewer resources and have a lower carbon footprint. We are harnessing the many opportunities of digitalization. We create chemistry for a sustainable future We are systematically aligning our portfolio with growth areas and Net Zero Accelerator future technologies, and are integrating sustainability into our value chains even more strongly. We create a working environment in The new Net Zero Accelerator unit started work on January 1, Our mission and motivation is to grow profitably and make a positive which our employees can thrive and contribute to BASF’s long-term 2022. It bundles the extensive cross-company activities with contribution to society and the environment. For example, BASF’s success. This is how we live our corporate purpose. which we want to achieve our ambitious climate protection solutions contribute to climate protection and help to prevent or For more information on our strategic action areas, see page 28 onward targets. The unit will initially have around 80 employees and recycle waste, produce healthy and affordable food, and enable report directly to the Chairman of the Board of Executive climate-smart mobility. Directors. It will focus on accelerating and implementing projects relating to low-CO production technologies, circular 2 At the same time, as an energy and resource-intensive company, we economy and renewable energies – driving forward BASF’s are facing what is probably the biggest transformation in our over transformation to a climate-neutral company. In parallel, our 150-year history: The shift toward a carbon-neutral and circular operating divisions will continue to work on divisional-specific economy and the associated landmarks such as the European carbon reduction projects. Green Deal demand from us new concepts and approaches – for the For more information on climate neutrality, see pages 27 and 126 to 132 way we produce, for our raw material base and for our energy supply.
In Focus: Climate Neutrality BASF Report 2021 Management’s Report – In Focus: Climate Neutrality 27 In focus: Our Journey to Climate Neutrality Climate change is the greatest challenge of the 21st century. Swift and resolute action is needed to ensure that the targets agreed in the Paris Climate Agreement can be achieved. We stand by this responsibility. In many areas, products and innovations based on chemistry are the key to a climate- neutral future. At the same time, we are working intensively to significantly reduce the carbon footprint of our production and thus of our products. Our target: net zero emissions by 2050. We have set ourselves an One thing is clear: The transformation will require significantly more ambitious milestone on this path. By 2030, we want to reduce the energy from renewable sources. Initial estimates suggest that at the greenhouse gas emissions from our production sites and our energy Ludwigshafen site in Germany alone, we would need to roughly purchases by 25% compared with 2018 – while growing production triple or quadruple our current electricity use (2021: 6.0 TWh) to volumes. This corresponds to a decrease of around 60% compared fully implement new, low-carbon electricity-based production pro- with 1990. We are intensely pursuing our climate protection targets cesses. To meet this demand, we are investing in our own power with investments of up to €4 billion by 2030. Our focus here is on assets, especially for wind power, and are increasingly buying green five strategic levers: We are increasingly meeting our energy electricity on the market (make & buy approach). needs from renewable sources (gray-to-green lever). We are increasingly relying on energy recovery to produce steam (power- Also critical to success are prices for renewable energy. Substi- to-steam lever). We are working to further improve the energy and tuting fossil fuels is only economically feasible at production costs of process efficiency of our plants (continuous opex lever). We are 4 to 5 cents/kWh. Consequently, there is an urgent need to expand increasingly replacing fossil resources with bio-based raw materials supply and reduce the levies and fees on electricity prices. In addi- (bio-based feedstocks lever). And together with partners, we are tion, globally comparable carbon pricing – or at least at G20 level – is pioneering nearly carbon-free production processes, especially for needed to ensure that climate-friendly processes are competitive emission- intensive basic chemicals (new technologies lever). internationally. For more information on energy and climate protection, see page 126 onward We want to play an active and responsible role in shaping the For more information on raw materials, see page 112 onward transition toward a climate-neutral society. This calls for new ways of thinking and working together. And it needs a political and regu- Our global climate protection targets latory environment that promotes innovation in climate protection, makes it possible to develop new, climate-smart processes that are –25% Net zero competitive internationally and, above all, resolutely drives forward Renewable energy is a central building block on BASF’s journey to the expansion of renewable energies – including through the appro- Reduction in our greenhouse gas Greenhouse gas emissions by climate neutrality. To enable us to meet our growing demand in the priate land use designations, rapid planning and approval proce- emissions by 2030 compared 2050 (Scope 1 and 2) future, we are gradually switching our supply agreements to green dures and the swift expansion of grid infrastructure. with 2018 (Scope 1 and 2) power and investing in our own plants. Find out more about how we are driving forward the transformation of our energy supply in the online report at report.basf.com.
BASF Report 2021 Management’s Report – Our Strategic Action Areas 28 Our Strategic Action Areas Our customers are our number one priority and are at the heart innovation and growth potential together with them. For instance, Good to know of our strategy. We want to be their most attractive partner for chal- we established interdisciplinary teams in our business units to even lenges that can be solved with chemistry. BASF supplies products better and more quickly address the needs of our most important and services to around 90,000 customers1 from almost all sectors customers. and countries around the world. Our customer portfolio ranges from major global customers and small and medium-sized enterprises to BASF’s strategic orientation is founded on a comprehensive end consumers. Our comprehensive product portfolio means that analysis of our markets and competitors. We continuously monitor we are active in many value chains and value creation networks. We global trends and anticipate the resulting growth opportunities and use various business strategies, which we adapt to the needs of risks. The following six strategic focus areas enable us to focus on individual industries and markets. These range from cost leadership our customers while strengthening our leading position in an increas- in basic chemicals to tailored system solutions for specific customer ingly volatile and competitive environment. applications. Innovation Selected awards Innovation is the bedrock of our success. BASF is a leader in the chemical industry with around 10,000 employ ees in research and The virtual car ▪ Ford: World Excellence Award development and R&D spending of around €2.2 billion. We are ▪ Dulux: Supplier of the Year Award The automotive industry is one of our most important customer expand ing this position by strengthening specific research activities, sectors. In February 2021, we launched an interactive platform ▪ 3M: Supplier of the Year Award for example in battery materials, polymer technologies, catalyst that showcases BASF’s wide range of solutions and innovation processes or biotechnological methods. In addition, we are bringing expertise in mobility: Customers can explore over 500 application We continue to drive forward our customer focus. We have refined research and development even closer together, incorporating our areas in a new virtual car – from high-performance plastics and our organizational structure to enable our operating divisions to customers’ requirements into our innovation processes even earlier coatings to automotive fluids, catalysts, cathode materials and flexibly address specific market requirements and differentiate them- and more intensively, and expanding cooperation with customers, more. Detailed information is provided on all products and solu- selves from the competition. universities, research institutions and other partners. To further tions. The virtual car offers a selection of different powertrain strengthen our innovation power, we will reorganize our global technologies: combustion engine, plug-in hybrid, battery electric We are also improving our customer relationships with a range of research activities in 2022 and bundle them in a global research unit vehicle and fuel cell vehicle. E-mobility solutions can also be filtered measures. For example, since 2019 we have been using the Net based in Ludwigshafen, Germany. by material properties such as battery efficiency, corrosion protec- Promoter System® worldwide to systematically record and optimize tion or thermal protection. our problem-solving skills, product quality and delivery reliability Our innovation pipeline is geared to sustainability – especially Discover the virtual car at basf-vcar.com based on direct customer feedback. We have been using a new climate protection and the circular economy. This lays the founda- IT-based customer relationship management system, Salesforce, tion for future growth: We are working intensively on fundamental since 2020. The application helps our sales employees to provide innovations for products, processes and business models, for customer support and simplifies their work. Above and beyond this, example in the chemical recycling of plastics, battery and catalyst we have intensified cooperation with our customers to leverage technologies, low-carbon production of basic chemicals, and digital, 1 The number of customers refers to all external companies (sold-to parties) that had contracts with the BASF Group in the business year concerned under which sales were generated.
BASF Report 2021 Management’s Report – Our Strategic Action Areas 29 more environmentally friendly agriculture. At the same time, we are the Hollandse Kust Zuid offshore wind farm, which Vattenfall expects We plan to invest €25.6 billion worldwide between now and 2026 driving forward product improvements in all business units that offer to commission in 2023. Together with RWE, we are developing to expand capacities based on market demand and to further our customers sustainability and competitive advantages, such as in a project concept for an offshore wind farm in the North Sea. In increase the availability, efficiency and flexibility of our plants. Our aim lightweight construction and surface solutions for the automotive addition, we have signed long-term purchase agreements for here is to be close to our customers and to grow together with them. industry, bio-based and biodegradable active ingredients for the renewable energy with suppliers such as Ørsted and Engie. For more information on our production sites and the Verbund structure, see page 20 cosmetics, detergent and cleaner industries, and energy-efficient building materials. Another focus is our product portfolio. We already met our 2025 Digitalization For more information on innovation, see page 49 onward target of generating Accelerator sales of €22 billion in 2021. In the future, we want to align our product portfolio even more strongly We want to leverage the diverse growth potential of digitalization Sustainability with climate protection, carbon neutrality and circularity in order to and seize the associated opportunities to the benefit of our custom- meet the growing sustainability demands in our markets with inno- ers. To achieve this, we promote digital skills among our employees, We believe that the economy, environment and society are inex tri- vative solutions. Consequently, we will update our product portfolio cooperate with partners and make digital technologies and ways cably linked and interrelated. We want to create value in all three steering target in 2022. of working an integral part of our business. For example, we had areas with our products, solutions and technologies. We pledged For more information on energy and climate protection, see page 126 onward introduced augmented reality solutions at 340 plants worldwide our commitment to sustainability in 1994 and since then, have For more information on circular economy, see pages 44 and 142 as of the end of 2021. We plan to implement these at more than systematically aligned our activities with the principles of sustain- For more information on Accelerator products und Sustainable Solution Steering, see pages 45 and 141 80 other plants by the end of 2022. ability. We want to further strengthen our position as a thought Production leader in sustainability. We see sustainability as an integral part of Digitalizing our plants and systematically analyzing data enables us our strategy as well as our targets, steering processes and business to further automate processes and in this way, increase the capacity, models. This establishes us as a responsible and attractive partner Our core business is the production and processing of chemicals. availability and efficiency of our plants, for example with predictive supporting our customers, opens up new growth areas and secures Our strength here lies – both now and in the future – in the Verbund maintenance. Linking data from different sources and using artificial the long-term success of our company. Our approach covers the and its integrated value chains. The Verbund offers us many tech- intelligence for smart data analysis opens up numerous opportuni- entire value chain – from responsible procurement and safety and nological, market, production-related and digital advantages. Our ties for us to manage our business more efficiently and improve our resource efficiency in production to sustainable solutions for our comprehensive product portfolio, which ranges from basic chemi- processes, for example in logistics. customers. cals to tailored system solutions, enables us to meet the increasingly diverse needs of our customers with a differentiated offering. This The combination of products, services and digital offerings also Since 1990, we have almost halved our carbon emissions while is complemented by our global presence, coupled with our many opens up new business models and advantages for our customers, simultaneously doubling sales product volumes. By 2030, we want decades of experience, which have allowed us to develop an such as in agriculture or 3D printing. In addition, digitalization enables 1 to reduce our absolute CO emissions by 25% compared with in-depth understanding of the needs and landscape of local us to further strengthen our innovative power. BASF has one of the 2 2018 and will invest up to €4 billion to this end. By 2050, we aim to markets. most powerful supercomputers in the chemical industry – Quriosity. achieve net zero emissions from our production sites and our energy It can be used to significantly accelerate complex computational purchases. We are pursuing ambitious climate protection targets Our integrated Verbund structure enables efficient, reliable and processes such as the simulation of molecules, enabling new with our carbon management. This comprises five strategic levers carbon- optimized steering of our production activities. In 2021, for chemi cal products to be developed more quickly, for example. that we are systematically driving forward to reduce our greenhouse example, we avoided 7.3 million metric tons of CO worldwide At the same time, we are already working on groundbreaking 2 gas emissions (see page 27). To increase the share of renewables through the intelligent networking of our plants and combined heat tech nologies such as quantum computing, including as a founding in our energy supply, for instance, we entered into pioneering and power generation. coopera tion agreements in 2021. For example, we hold a share in 1 In March 2021, we replaced our previous target of CO -neutral growth until 2030 (baseline 2018: 21.9 million metric tons of CO e) with a new, more ambitious climate protection target to reduce absolute CO emissions by 25% compared with 2018 (new target: 16.4 million metric tons of CO e). 2 2 2 2
BASF Report 2021 Management’s Report – Our Strategic Action Areas 30 member of the Quantum Technology and Application Consortium We are expanding our battery materials business with further Employees (QUTAC) industry consortium launched in 2021. investments and strategic partnerships and are developing inno- For more information on digitalization in production, see page 119 vative recycling concepts, in particular to supply the fast-growing Our employees are key to BASF’s success. That is why we believe global e-mobility market with sustainable solutions. We are currently that it is important to have an inspiring working environment that 1 Portfolio building a precursor plant for cathode active materials in Harjavalta, fosters and develops employees’ individual talents and enables 2 Finland, and a production plant for cathode materials in Schwarz- them and their teams to perform at their best. We are pursuing three The acquisitions and divestitures made in the past few years heide, Germany. Both plants are scheduled for startup in 2022. In action areas to make our high-performance organization even more have oriented our portfolio even more strongly toward inno vation- Schwarzheide, we are also building a prototype plant for battery so: empowerment, differentiation and simplification. At the same 2 driven growth areas. In 2021, we successfully integrated the poly- recycling, which is expected to start up in 2023. We also reached time, we encourage and promote a leadership culture that empow- amide business acquired from Solvay, further strengthening our another important milestone in the development of a global value ers our employees to respond to customer needs quickly and effi- position in engineering plastics. We closed the divestiture of our chain for battery materials with the formation of BASF Shanshan ciently with a solution orientation. We value diversity in people, pigments business to the fine chemicals company DIC as planned in Battery Materials Co., Ltd. in China at the end of August 2021. With opinions and experience as being crucial to creativity and innovation. the first half of 2021. The sale of our shareholding in Solenis to production facilities in all key regions and a global capacity of 160 We embrace bold ideas, help our employees to implement them Platinum Equity was also completed as planned in November 2021. metric kilotons of cathode materials from 2022 onward, we are able and learn from setbacks. It is founded on an open feedback and We intend to close the divestiture of our kaolin minerals business to to serve cell manufacturers and OEM customers in all relevant mar- leadership culture based on mutual trust, respect and dedication to KaMin, announced in November 2021, in the second half of 2022, kets with tailored and sustainable solutions. We also entered into a top performance. subject to the approval of the relevant merger control authorities. number of cooperative agreements in 2021, including with battery For more information on employees, see page 97 onward cell manufacturers such as CATL and SVOLT and automotive manu- We steer our six segments along our value chains. Our operating facturers such as Porsche. The aim is to jointly drive forward the divisions drive forward our industry and customer orientation with development of innovative cathode materials and recycling differentiated strategies. technologies. The Asian market will play a key role in our future growth. With a The transition to electromobility is leading to fundamental changes in share of more than 45%, China is already the world’s largest chemi- the automotive industry. As a leading chemical supplier to the auto- cal market and will be an even stronger driver of growth in global motive industry, we will further strengthen our focus on battery chemical production in the future. Our strong innovation, production materials and battery recycling. To this end, in January 2022, we and sales base in Asia, and in particular in China, enables us to started the carve-out process for our mobile emissions catalysts respond to the needs of our customers in a differentiated way. To business, automotive catalysts recycling and the associated pre- further strengthen our position in this dynamic growth market, we cious metal services unit. The new, standalone organizational plan to build a second Verbund site in China, in Zhanjiang in the structure prepares the business for the upcoming changes in the southern Chinese province of Guangdong. Construction on the first internal combustion engine market. plants continued as planned in 2021. They are scheduled for startup For more information on material investments and portfolio measures, see page 38 onward in 2022. We will also expand the Verbund site we operate together with Sinopec in Nanjing, China, by 2023. This investment includes new production plants for selected products in the Petrochemicals and Intermediates divisions. 1 The investment in Finland is co-financed by Business Finland, the Finnish government organization for innovation funding and trade, travel and investment promotion. 2 Our investment and research activities in Schwarzheide and Ludwigshafen, Germany, receive funding from the German Federal Ministry for Economic Affairs and Climate Action and the Ministry for Economic Affairs, Labor and Energy of the German state of Brandenburg under the IPCEI on Batteries (funding code 16BZF101A/B).
BASF Report 2021 Management’s Report – Our Values and Global Standards 31 Our Values and Global Standards How we act is critical to the successful implementation of our strategy and how our stakeholders perceive us. This is what our four corporate values represent: creative, open, responsible, entrepreneurial (CORE). They are binding for all employees worldwide. Together with our Code of Conduct and our global standards and guidelines, they provide the framework for responsible conduct. Our CORE values define how we want to work together – as a team, – The Responsible Care® Global Charter with our customers and our partners. – The German Corporate Governance Code Good to know Creative: We make great products and solutions for our customers. We stipulate binding rules for our employees with standards that This is why we embrace bold ideas and give them space to grow. apply throughout the Group. We set ourselves ambitious goals with We act with optimism and inspire one another. voluntary commitments and regularly monitor our performance in environmental protection, health and safety with our Responsible Open: We value diversity, in people, opinions and experience. This Care Management System. We mainly approach our adherence to is why we foster feedback based on honesty, respect and mutual international labor and social standards using three elements: the trust. We learn from setbacks. Compliance Program including our Code of Conduct and compli- ance hotlines, close dialog with our stakeholders, and the global CORE Leadership Values Responsible: We value the health and safety of people above all management process to respect international labor norms. Our else. We make sustainability part of every decision. We are commit- business partners are expected to comply with prevailing laws and Leaders have a special responsibility for our success, especially in ted to strict compliance and environmental standards. regulations and to align their actions with internationally recognized challenging and changing times. Good leadership provides sup- principles. We have established appropriate monitoring systems to port and is vital to our employees’ motivation and performance. Entrepreneurial: We focus on our customers, as individuals and ensure this. That is why we have derived specific leadership skills from each as a company. We seize opportunities and think ahead. We take For more information on the Responsible Care Management System, see page 117 onward CORE corporate value – our CORE Leadership Values. They serve owner ship and embrace personal accountability. For more information on compliance, see page 171 onward as guiding principles and describe our expectations of leadership For more information on stakeholder engagement, see pages 47 and 106 behavior – such as living optimism, inspiring teams, promoting Our standards fulfill and in some cases, exceed existing laws and For more information on our expectations of our suppliers, see page 109 onward diversity and making even difficult decisions. regulations and take internationally recognized principles into We support our leaders at every stage of their careers in fulfilling account. We respect and promote: their responsibilities and acting as role models. One component of this is the CORE Leadership Upskilling program launched in 2021. – The 10 principles of the U.N. Global Compact It comprises a range of virtual training modules and learning – The Universal Declaration of Human Rights and the two U.N. resources that encourage self-reflection and provide opportunities Human Rights Covenants for global dialog. – The core labor standards of the ILO and the Tripartite Declaration For more information on what we expect from our leaders, see page 98 of Principles Concerning Multinational Enterprises and Social Policy (MNE Declaration) – The OECD Guidelines for Multinational Enterprises
In Focus: Global Trends BASF Report 2021 Management’s Report – In Focus: Global Trends 32 In focus: Global Trends and Growth Opportunities for BASF It is important for us to understand which global trends will shape the future. On this basis, we can identify opportunities, align our strategies and operations, monitor risks and create value added for our stakeholders. The transition to a climate-neutral society is the greatest Growing resource scarcity means that resources and materials challenge of the coming decades. Many of our products and tech- must be used responsibly. We develop and market innovative tech- nologies are key to this transformation. For example, we are nologies and products in a wide variety of areas to keep recyclable developing innovative battery materials, lightweight materials, and materials in circulation for as long as possible. Going forward, we will additives for climate-smart mobility. Catalysts and other emission align our business models, products and processes even more control technologies from BASF reduce emissions in many applica- strongly with the circular economy. For example, we are driving for- tions. Materials from BASF make buildings more energy efficient and ward the chemical recycling of plastics and improving mechanical generating power from wind and solar energy possible. We help recycling with new products and technologies. Other action areas farmers reduce carbon emissions with our integrated offering of include the use of renewable and recycled raw materials and the seeds, crop protection and digital solutions. We are continuously recovery of metals from spent batteries and catalytic converters. expanding our portfolio of climate protection products. At the same time, we are working hard to significantly reduce the carbon foot- Digitalization and connectivity offer many opportunities to opti- print of our production and our products in our carbon management. mize our processes: maintenance work can be planned in advance, innovation processes accelerated or logistics concepts and cus- Population growth and rising prosperity will increase demand tomer relationships improved. In addition, new business models are for food, household and personal care products, drugs, clothing opening up, for example in agriculture or with products for the and much more. At the same time, consumer behavior is changing. electronics and semiconductor industries. Sustainability aspects are playing an increasingly important role in our value chains. Our innovative solutions for agriculture enable In the emerging countries of Asia and South America, we have higher yields from the same land area, contributing to a food supply an innovation, production and sales base that has grown over that meets diverse economic, environmental and social require- several decades. We are strengthening this position with further ments. We offer food and feed manufacturers and customers in the investments. BASF is conducting research globally on innovative battery materials. pharmaceutical, cosmetics, detergents and cleaners industries a Kathrin Michel’s team, for example, is looking at how charging times product portfolio focused on sustainability, which we are continually can be shortened, ranges increased and battery life improved. Find expanding with bio-based and biodegradable solutions. out more about how BASF is contributing to climate-smart mobility in the online report at report.basf.com.
BASF Report 2021 Management’s Report – Business Models of the Segments 33 Business Models of the Segments Markets and consumer behavior are moving faster than ever, presenting our customers from a variety of industries and regions with a wide range of challenges. These include managing limited natural resources amid rising demand and the trend toward sustainable products. Our segments’ business models help to solve these challenges and show how we implement our corporate strategy in practical terms. Chemicals Strategic alignment of the segments Industrial Surface Nutrition & Agricultural The Chemicals segment is at the heart of the Verbund. It reliably Chemicals Materials Solutions Technologies Care Solutions supplies BASF’s other segments with chemicals to produce higher Verbund synergies Catalysis value-added products. It also markets high-quality basic chemicals Process technology and intermediates to customers in downstream industries. In this Automotive industry way, the Chemicals segment makes a significant contribution to BASF’s organic growth. Recycling and renewable raw materials Biosciences We create value through process and product innovation and invest Formulation in research and development to implement new, sustainable tech- Digitalization and artificial intelligence nologies and make our existing technologies even more efficient. Technological leadership, operational excellence and a clear focus Strategic focus Economies of scale in High-performance Additives Surface technology Ingredients for Connected offer on individual value chains are among our most important competi- basic chemicals and plastics platform platform consumer products across technologies intermediates for farmers tive advantages. We concentrate on the critical success factors of Innovation and Improved and Applications, Polymer dispersions, Battery materials, Biotechnology, Active ingredients, the traditional chemicals business: leveraging economies of scale sustainability focus new processes recycled and bio- resins coatings natural active seeds and traits, and the advantages of our Verbund, high asset reliability, continuous based materials ingredients, digital solutions formulations optimization of access to raw materials, lean and energy efficient processes, and reliable, cost-effective logistics. We continuously improve our value chains and are expanding our market position – Materials Additional differentiators are our products that contribute to the especially in Asia – with investments and collaborations in growth circular economy and our more sustainable production processes. markets. The Materials segment develops new plastics applications, BASF is active in substantial parts of plastic value chains, from high-performance materials, systems and digital solutions. Our monomers to polymers and their formulated specialties. Combined Furthermore, we are constantly improving our global production product portfolio is unique in the industry. We aim to grow mainly with our specific technology knowledge, this offers us the unique structures and aligning these with regional market requirements. organically by differentiating ourselves from our competitors with our ability to shape and close cycles ourselves. One concrete example For example, we closed a production plant for butanediol in Kuantan, systems-oriented application expertise and industry knowl- is our pilot projects for recycling used mattresses: Based on a wet Malaysia, in 2021. We also plan to expand our 2-ethylhexanoic acid edge, and creating maximum value in our isocyanate and polyamide chemical process developed by BASF, precursors recovered from plant there, which is scheduled for startup in 2024. value chains. Our advanced material simulation capabilities are a old mattresses can be used to produce new mattress-sized unique selling proposition in the industry and enable us to operate blocks of flexible polyurethane foam. Other examples include our TM close to our customers. ChemCycling project, biomass balanced products and certified
BASF Report 2021 Management’s Report – Business Models of the Segments 34 compostable bioplastics. This also enables us to meet growing products and technologies in close collaboration with our customers biodegradable products. In this connection, BASF has entered customer needs in all key markets. from the catalysts, coatings and battery materials sectors. We also into partnerships to further strengthen its position in the bio-based offer precious and base metal as well as surface treatment services. surfactants and actives market. One example is the technology Tailor-made service and product offerings enable us to continu- Our aim is to drive growth by leveraging our portfolio of technologies cooperation with Holiferm Ltd, Manchester, United Kingdom. The ously expand the range of applications in our portfolio. We operate to find the best solution for our customers in terms of functionality focus here is on the development of fermentatively accessible close to our customers with our global production network. and cost. This in turn helps our customers to drive forward inno- glycolipids for home and personal care and industrial formulator vation in their industries and contribute to sustainable development. applications. Industrial Solutions Key growth drivers for us are the positive medium-term develop- Our enzymes business enables us to pursue a targeted, accelerated The Industrial Solutions segment markets and develops ingredients ment of the automotive market, especially in Asia, the trend toward marketing strategy and expand our portfolio for natural and bio- and additives for industrial applications. These include fuel and sustainable, low-emission mobility, and the associated rise in technological products. Furthermore, we are investing in natural and lubricant solutions, ingredients for paints and coatings, electronic demand for battery materials for electromobility. Together with biological substances. BASF’s biopharma business supports the materials and plastic additives. We concentrate on research and our customers, we are developing customized, more sustainable biopharmaceutical industry by supplying the raw materials used to development and invest in the creation of innovations with the aim solutions in these growth areas for battery materials, emission con- produce biological drugs. of enabling more efficient resource use. This is why we develop trol, recycling and functional coatings. Our specialties and system more sustainable products and processes, for example, in polymer solutions in these areas enable customers to stand out from their In addition, acquisitions complement our focus on emerging dispersions, resins and plastic additives, and enable our customers competition. markets, new business models and sustainability trends in to contribute to sustainability through their applications and consumer markets. Future growth in our markets will be driven by processes. Other focus areas are efficient production setups, back- The above trends mean that the automotive industry is currently trends like growing consumer awareness and the resulting demand ward integration in our Production Verbund’s value chains, capacity undergoing a fundamental transformation. As one of the largest for sustainable product solutions, natural and organic ingredients management, and technology and cost leadership. chemicals suppliers to this industry, we will, as announced in and their traceability. Moreover, the shift toward individualization December 2021, further strengthen our focus on battery materials and local production supports new players and business models. Our global presence enables us to operate close to our customers and recycling and pursue an ambitious growth plan. We will also Digitali zation, a focused technology and product portfolio, and close and their industries. As a reliable partner, we offer high-quality establish a new entity (BASF Automotive Catalysts and Recycling) cooperation with our customers is crucial to meeting these dynamic products at good value. We work on new solutions together with within the Catalysts division for mobile emissions catalysts, auto- market requirements both now and in the future. our customers and strive for long-term partnerships that create motive catalysts recycling and associated precious metal services. profitable growth opportunities for both parties. To achieve this, The carve-out process started in January 2022. The new organiza- Agricultural Solutions we draw on our innovative strength and our many years of experience tional structure will prepare the business for the upcoming changes and in-depth industry expertise. Through our in-depth application in the internal combustion engine market and allow for future Farming is fundamental given that by 2050, the world’s population is 1 knowledge and technological innovations, we strengthen customer strategic options. expected to increase by two billion people. In the Agricultural Solu- relationships in key industries such as the automotive, plastics and tions segment, we believe that the way forward for agriculture is to electronics industries. Nutrition & Care find the right balance and create value for the environment, society and business. While the demand for food, feed, fiber and energy is Surface Technologies In the Nutrition & Care segment, we strive to expand our position as growing, natural resources are limited. Agriculture is a key enabler a leading provider of nutrition and care ingredients for consumer in providing enough healthy, affordable food and responding to In the Surface Technologies segment, our focus is on the protection, applications. We aim to enhance our capabilities in areas such changing consumer behavior while reducing the impact on the modification and development of surfaces. We develop innovative as biotechnology and broaden our portfolio with bio-based and environment. 1 Source: U.N. World Population Prospects 2019
BASF Report 2021 Management’s Report – Business Models of the Segments 35 As one of the world’s leading agricultural solutions companies, we are committed to making a positive impact on sustainable agricul- ture and food systems. Our innovation-driven strategy for agricul- ture focuses on selected crops and their appropriate cultivation systems in specific regions. We integrate sustainability criteria into all business and portfolio decisions. In doing so, we help farmers achieve better yield – yield that is produced in ways that are recog- nized as valuable by society, are kind to the planet and enable farmers to produce economically. We leverage our expertise in research and development and our deep understanding of the way individual growers manage their farms to provide offers across technologies. These include novel solutions for seeds, traits, crop protection and digital products, which we link intelligently. This enables us to offer farmers solutions tailored to their region and crop systems to safeguard yields, miti- gate risks and fulfill societal requirements.
BASF Report 2021 Management’s Report – Targets and Target Achievement 2021 36 Targets and Target Achievement 2021 Business success tomorrow means creating value for the environ- We also pursue broad sustainability targets. In this context, we The objective of these targets is to steer our business into a sustain- 2 ment, society and business. That is why we have set ourselves significantly raised our CO reduction target in 2021. We want to able future, and at the same time, contribute to the implementation 2 ambitious targets along our entire value chain. We report transpar- strengthen the sustainability focus of our product portfolio and will of the United Nations’ Sustainable Development Goals (SDGs). We 3 ently on our target achievement so that our stakeholders can track update our portfolio steering targets in 2022. We also strive to are focusing on issues where we as a company can make a signifi- our progress. In order to grow profitably, we want to grow sales strengthen the sustainability of our supply chains and use resources cant contribution, such as climate protection, sustainable consump- volumes faster than global chemical production, further increase our responsibly. We want to further improve safety in production. In tion and production, and fighting hunger. profitability, achieve a return on capital employed (ROCE) consider- addition, we aim to promote diversity within the company and create For more information on financial indicators, see page 52 onward ably above the cost of capital percentage and increase the dividend a working environment in which our employees feel that they can For more information on sustainability along the value chain, see page 96 onward per share every year based on a strong free cash flow. thrive and perform at their best. Profitable growth 2021 2021 2021 2021 2021 status status status status target 53% 1 13.5% 2021 10.6% €3.40 > 2021 €3.30 target > target 9% SDG >6.1% SDG 2021 SDG SDG target 3% – 5% Most important key performance indicator Achieve a return on capital Grow sales volumes Increase EBITDA Increase the dividend employed (ROCE) considerably above the faster than global chemical before special items per share every year based cost of capital percentage every year production every year by 3%–5% per year on a strong free cash flow Effective climate protection Sustainable product portfolio 2021 2021 2025 status 2030 status target 20.2 target €24.1 €22.0 SDG million 16.4 billion billion metric million tons metric SDG tons Reduction target Most important key performance indicator Most important key performance indicator 1 Dividend proposed by the Board of Executive Directors 2 Includes Scope 1 and Scope 2 emissions. In March 2021, we replaced our previous target of CO -neutral growth until 2030 (baseline 2018: 21.9 million metric tons Reduce our absolute Achieve €22 billion in 2 of CO e) with a new, more ambitious climate protection target to reduce absolute CO emissions by 25% compared with 2018 (new target: 16.4 million metric tons 2 2 3 of CO e). CO emissions² by 25% by 2030 Accelerator sales by 2025 2 ² 3 We already reached our 2025 sales target for Accelerator products in 2021. Consequently, we will update our product portfolio steering target over the course of 2022.
BASF Report 2021 Management’s Report – Targets and Target Achievement 2021 37 Responsible procurement 2021 2025 status target 2021 2025 90% status target 85% 80% 74% SDG SDG Limited assurance Limited assurance Cover 90% of our relevant Have 80% of our suppliers spend with sustainability improve their sustainability evaluations by 2025 performance upon re-evaluation Resource efficiency and safe production 2021 2021 2030 status status target 0.3 0.3 100% 2021 2025 2025 status target SDG target SDG 53.5% SDG < < 0.1 0.1 Limited assurance Limited assurance Reduce worldwide process safety Reduce the worldwide lost-time Introduce sustainable water management incidents per 200,000 working injury rate per 200,000 working at our production sites in water stress areas hours to ≤0.1 by 2025 hours to ≤0.1 by 2025 and at our Verbund sites by 2030 Employee engagement and diversity 2030 2021 2021 target status target 2021 1 30% 82% > status 80% 25.6% SDG SDG Limited assurance Limited assurance Reduction target Increase the proportion of women in More than 80% of our employees leadership positions with disciplinary feel that at BASF, they can thrive responsibility to 30% by 2030 and perform at their best 1 We regularly calculate the employee engagement level. The most recent survey was conducted in 2020. The next survey is planned for spring 2022.
BASF Report 2021 Management’s Report – Material Investments and Portfolio Measures 38 Material Investments and Portfolio Measures In addition to innovations, investments make a decisive contribution toward achieving our ambitious growth and climate protection goals. We use targeted acquisitions to supplement our organic growth. Our focus is on innovation-driven growth areas and sustainable technologies. With a world market share of over 45%, China is already the largest Additions to property, plant and equipmenta by segment in 2021 At a glance chemical market and will drive growth in global chemical production to an even greater extent in the future. We expect China’s share to 28% 16% €3.4 billion €25.6 billion increase to over 50% by 2030. To further strengthen our position in Chemicals Nutrition & Care Capex1 in 2021 Capex planned for 2022 to Asia, we plan to build a new integrated Verbund site in Zhanjiang 2026 €4,078 million 8% in the southern Chinese province of Guangdong. The first plants 17% Agricultural Solutions started construction in 2020, and we made further progress on Materials these in 2021. They are scheduled for startup in 2022. We will 4% 9% Others (infrastructure, R&D) By investing in our plants, we create the conditions for the profitable also expand the Verbund site we operate together with Sinopec in Industrial Solutions growth we strive for and continuously improve the efficiency of exist- Nanjing, China, by 2023. 18% ing production processes. Investments in new technologies and in Surface Technologies the transformation of our energy supply will help to achieve our In addition, we are refining our portfolio through acquisitions that growth targets and our ambitious climate targets. For the period promise above-average profitable growth as part of the BASF Ver- 1 from 2022 to 2026, we are planning capital expenditures (capex) bund to help reach a relevant market position. A key consideration totaling €25.6 billion, including €12.9 billion for our major growth is that these are innovation-driven or offer a technological differen- projects.2 tiation, and make new, sustainable business models possible. Additions to property, plant and equipmenta by region in 2021 For more information on our investments from 2022 onward, see page 150 Investments and acquisitions alike are prepared by interdisciplinary 2% teams and assessed using various criteria. In this way, we ensure South America, Africa, Middle East Investments and acquisitions 2021 that economic, environmental and social concerns are included in Million € strategic decision-making. 24% Invest- Acquisi- Asia Pacific €4,078 million 53% ments tions Total Europe Intangible assets 78 392 470 21% Investments in the segments and regions of which goodwill – 254 254 North America Property, plant and equipmenta 4,078 332 4,410 Investments in property, plant and equipment amounted to a Including restoration obligations, IT investments and right-of-use assets arising from leases Total 4,156 725 4,881 €4,078 million in 2021 (2020: €3,516 million). Capex accounted for a Including restoration obligations, IT investments and right-of-use assets arising from leases €3,363 million of this amount (2020: €2,878 million). Our invest- ments in 2021 focused on the Chemicals, Materials, Surface Technologies and Nutrition & Care segments. 1 Additions to property, plant and equipment excluding acquisitions, restoration obligations, IT investments and right-of-use assets arising from leases 2 Major growth projects are the construction of our future Verbund site in Zhanjiang, China, as well as our battery materials activities.
BASF Report 2021 Management’s Report – Material Investments and Portfolio Measures 39 Chemicals Overview of material investments Segment Location Project Start-up Strategically, our investments concentrate on the growth markets Chemicals Antwerp, Belgium Capacity expansion: ethylene oxide plant 2022 to support the growth of our customers in China. In 2021, for exam- a Kuantan, Malaysia Capacity expansion: 2-ethylhexanoic acid plant 2024 ple, we increased the production capacity for tertiary butylamine. Nanjing, China Capacity expansion: tertiary butylamine plant 2021 Together with our partner Sinopec, we are pushing ahead with plans Capacity expansion: propionic aldehyde, propionic acid, purified ethylene oxide, 2023 to further expand the site in Nanjing, China, to strengthen the joint ethyleneamines and ethanolamines plantsb production of chemical products in China. For instance, we plan to Construction: tert-butyl acrylate plantb 2023 further expand our production capacities for propionic aldehyde, Zhanjiang, China Construction: neopentyl glycol plant 2025 propionic acid, purified ethylene oxide, ethanolamines and ethylen- eamines, and build a new tert-butyl acrylate plant. The expanded Materials Chalampé, France Construction: world-scale production plant for HMD 2024 and new plants are scheduled to come onstream in 2023. Geismar, Louisiana Capacity expansion: MDI plants 2026 Zhanjiang, China Construction: engineering plastics plant 2022 At our Verbund site in Antwerp, Belgium, we are significantly Industrial Solutions Jiaxing, China Capacity expansion: production plant for sulfuric acid 2023 expanding our ethylene oxide plant. The project also includes Jinshan, China Capacity expansion: synthetic esters 2022 several downstream plants, for example, to produce surfactants. Jurong, Singapore Capacity expansion: antioxidants (Irganox®) 2022 The expansion is scheduled to come onstream in 2022. Pasir Gudang, Malaysia Capacity expansion: production plant for acrylics dispersions 2021 Pontecchio Marconi, Italy Capacity expansion: antioxidants (Irganox®) 2021 ® ® Materials Capacity expansion: light stabilizers (Tinuvin NOR 356) 2021 Surface Technologies Chennai, India Capacity expansion: plant for mobile emissions catalysts 2022 In the Materials segment, production capacities at the methylene Harjavalta, Finland Construction: precursor plant for cathode active materials 2022 diphenyl isocyanate (MDI) plants in Geismar, Louisiana, were suc- Pinghu, China New surface treatment site 2021 cessfully increased by one third following the construction of a new Schwarzheide, Germany Construction: cathode active materials plant 2022 MDI synthesis unit, which was completed with the start of opera- Construction: battery recycling prototype plant 2023 tions in 2020. In the final phase, we plan to increase capacities to Nutrition & Care Antwerp, Belgium Capacity expansion: alkoxylates 2018–2022 around 600,000 metric tons per year by 2026. With this gradual Düsseldorf, Germany Gradual upgrade of production plants in accordance with the Good Manufacturing capacity expansion, we are supporting the continuing growth of our Practice Standard issued by the European Federation for Cosmetic Ingredients (EFfCI) 2023 North American MDI customers. Jinshan, Chinac New production line: UV filters 2023 Ludwigshafen, Germany Capacity expansion: production plant for methane sulfonic acid 2022 The construction of the first plants at our smart Verbund site in Capacity expansion: production plant for vitamin A 2021 Zhanjiang, China, is in progress. The new plants are scheduled to Agricultural Solutions Beaumont, Texas Modernization of site infrastructure 2022 come onstream in 2022. They will produce engineering plastics and Hannibal, Missouri Modernization of site infrastructure 2022 thermoplastic polyurethane (TPU) to serve the increasing needs of Nunhem, Netherlands Expansion of breeding facilities for vegetable seeds 2021 various growth industries in the southern China market and in other Asian markets. Singapore New formulation hub for crop protection products 2022 Sparks, Georgia New facility for seed treatment formulations 2021 BASF is investing in a new world-scale production plant for a Operated by a fully consolidated joint venture with Petronas Chemicals Group Berhad b Operated by a joint venture with Sinopec hexamethylened iamine (HMD) at the Chalampé site in France. The c This project was relocated from Kaohsiung, Taiwan, to Jinshan, China.
BASF Report 2021 Management’s Report – Material Investments and Portfolio Measures 40 new plant will increase BASF’s annual HMD production capacity to production capacities in what are currently the main markets: China, investments were made in the modernization of site infrastructure in 260,000 metric tons. Production is expected to start in 2024. Japan, North America and Europe. North America. To meet continuing high demand for our innovative solutions in the future, between 2022 and 2026, we will invest more In addition, BASF announced in 2021 that it will build a battery than €950 million in developing and expanding our infrastructure, Industrial Solutions recycling prototype plant in Schwarzheide, Germany. Startup is including state-of-the-art R&D facilities, and in our production and planned for 2023. The prototype plant will allow for the development formulation capacities for active ingredients as well as for seed In the Industrial Solutions segment, we are increasing global pro- of operating procedures and optimization of technology to deliver solutions. duction capacity for the antioxidant Irganox® 1010 through a project superior returns of lithium, nickel, cobalt and manganese from end- For more information on our segments, see page 72 onward to expand production at the site in Jurong, Singapore. With the of-life lithium-ion batteries. completion of the project in 2022, BASF aims to better serve the Good to know growing demand from customers in Asia, Europe, the Middle East and Africa. In addition, we increased production capacity for the Nutrition & Care ® antioxidant Irganox 1520L by 20% at the site in Pontecchio Marconi, Italy, in the first quarter of 2021. In Ludwigshafen, Germany, we started up the expanded vitamin A production facilities for the Nutrition & Care segment in July 2021. To meet the increasing demand for high-quality dispersions solu- We also invested in the expansion of alkoxylate capacities at the tions in the growing ASEAN, Australian and New Zealand markets, Verbund site in Antwerp, Belgium. we have doubled the production capacity for acrylics dispersions in Pasir Gudang, Malaysia. The additional capacities started up in the By mid-2022, BASF will increase its capacities for methane sulfonic first quarter of 2021. We are currently building our third electronic- acid by around 65% in response to growing cross-industry demand, grade sulfuric acid plant in Jiaxing, China. This investment will more strengthening its position as a leading global producer. To this end, than double BASF’s existing sulfuric acid production capacity in the we are investing in the construction of a new methane sulfonic acid country to serve the rapidly growing semiconductor industry. The plant at the Ludwigshafen site in Germany. Methane sulfonic acid New Verbund site in Zhanjiang site expansion is scheduled for completion in 2023. is an organic acid used in numerous applications ranging from chemical and biofuel synthesis to industrial cleaning and metal Based on its goal of net zero emissions by 2050, BASF has surface treatment in the electronics industry. made further progress toward reducing its carbon footprint. In Surface Technologies June 2021, we signed a purchase agreement for renewable electricity with China Resources Power, Hong Kong, China, We aim to expand our position as a leading and innovative provider Agricultural Solutions under the new Guangdong renewable energy trading rules in of battery materials and benefit from the strong growth in this market China. This will enable us to run the first plants at BASF’s new segment. A global, customer-focused production network for bat- The investment in a formulation hub for crop protection products in Verbund site in Zhanjiang entirely on renewable energy. The new tery materials is crucial here. Construction of our new production Singapore will, from 2022 onward, ensure that multiple formulation plants are scheduled for startup in late 2022. This is a significant plant for cathode materials in Schwarzheide, Germany, continued technologies are produced in close proximity to farmers in Asia step toward transforming of our energy supply in China. as planned in 2021. The new plant will use precursors from the Pacific. We also invested in the expansion of our production site Discover the smart Verbund site in Zhanjiang, China, at basf.com/zhanjiang production facility under construction in Harjavalta, Finland. The two in Sparks, Georgia, establishing a new formulation plant for seed plants are scheduled for startup in 2022 and will produce cathode treatment products, which came into operation in 2021. At the active materials for around 20 gigawatt hours of cell capacity per Nunhem site in the Netherlands, we continued the expansion of year. With these investments in Finland and Germany, BASF aims our breeding facilities for vegetable seeds with a state-of-the-art to become the first cathode active materials supplier with local tomato greenhouse, which has been available since 2021. Further
BASF Report 2021 Management’s Report – Material Investments and Portfolio Measures 41 Acquisitions On June 30, 2021, we closed the divestiture of our global pigments BASF’s Performance Chemicals division and has approximately business to the Japanese fine chemical company DIC, Tokyo, 440 employees in North America, Europe and Asia. The divestiture On August 31, 2021, BASF and Shanshan announced the formation Japan. The business transfer agreement, which affected around comprises the production hub with sites in Daveyville, Toddville, of BASF Shanshan Battery Materials Co., Ltd. The newly formed 2,500 employees, was signed on August 29, 2019. The purchase Edgar, Gordon and related mines, reserves and mills in Toomsboro entity is majority-owned by BASF (BASF 51%; Shanshan 49%). price on a cash and debt-free basis was €1.15 billion. The Disper- and Sandersville in Georgia. The refinery catalysts operations located It has four sites in Hunan and Ningxia, China, with more than sions & Pigments division was renamed Dispersions & Resins at the same site are not part of the divestiture. Pending approval by 1,600 employees. BASF Shanshan Battery Materials Co., Ltd. will following the transaction closing. the relevant authorities, closing of the transaction is expected in the focus primarily on the rapidly growing electric vehicle (EV) market For more information on this divestiture, see Note 3 to the Consolidated Financial Statements from second half of 2022. while serving global consumer electronic and energy storage market page 209 onward segments. The business is a part of the Catalysts division. On December 6, 2021, BASF and Allianz Capital Partners, on behalf For more information on this acquisition, see Note 3 to the Consolidated Financial Statements from On November 9, 2021, BASF and Clayton, Dubilier & Rice sold their of Allianz Insurance Companies (Allianz), announced that they had page 207 onward shares in Solenis to Platinum Equity, a private equity company reached an agreement on the purchase of 25.2% of the Hollandse based in Beverly Hills, California. With over 5,200 employees, Kust Zuid (HKZ) wind farm by Allianz. This follows a transaction Following approval of the relevant authorities, we completed the Solenis serves customers in water-intensive industries by helping between Vattenfall and BASF under which BASF acquired 49.5% of purchase of 49.5% of Vattenfall’s Hollandse Kust Zuid wind farm on them solve complex water treatment and process improvement HKZ from Vattenfall on September 1, 2021. BASF will continue to 1 September 1, 2021. The purchase price was €0.3 billion. Wind challenges. BASF held a 49% share in Solenis after transferring its receive most of the power produced by its originally acquired share farm construction began in July 2021. Once fully operational in paper and water chemicals business to the company in February of 49.5% of HKZ under a long-term fixed-price corporate power 2023, the wind farm will be the largest commercial offshore wind 2019. This was reported as a non-integral investment accounted purchasing agreement. The transaction is expected to close in the farm in the world. This wind farm does not receive any subsidies for for using the equity method. The remaining 51% of the shares first quarter of 2022, subject to the approval of the relevant merger the power produced. On December 6, 2021, BASF and Allianz were held by funds managed by Clayton, Dubilier & Rice, and by control authorities. Capital Partners announced that they had reached an agreement Solenis management. The purchase price attributable to BASF was on the purchase of a 25.2% interest by Allianz Capital Partners €1.1 billion. On December 28, 2021, BASF reached an agreement to divest its (see “Agreed transactions”). production site in Quincy, Florida, and the associated attapulgite On November 30, 2021, we completed the sale of the precision business to Clariant for a purchase price of $60 million. The Quincy microchemicals business to Entegris. The transaction included fixed facility employs around 75 employees and manufactures clay- based Divestitures assets and inventories. The purchase price amounted to $90 million. mineral products used in a variety of industrial applications. The The precision microchemicals business was part of the Surface transaction affects the Dispersions & Resins division and is expected On May 31, 2021, BASF completed the sale of its production site in Treatment business unit of BASF’s Coatings division, operating to close in the summer of 2022, subject to the approval of the Kankakee, Illinois, to a subsidiary of One Rock Capital Partners, LLC. under the Chemetall brand. relevant antitrust authorities. The agreement also includes the vegetable-oil-based sterols and natural vitamin E business as well as the anionic surfactants and esters produced at the Kankakee site. The purchase price was Agreed transactions €177 million. The transaction affected the Nutrition & Health and Care Chemicals divisions. On November 18, 2021, BASF and KaMin LLC. / CADAM S.A. (KaMin) signed an agreement to sell BASF’s kaolin minerals business to KaMin, a global performance minerals company headquartered in Macon, Georgia. Currently, the kaolin minerals business is part of 1 The transaction is not reported as an acquisition in the Notes to the Consolidated Financial Statements as according to IFRS 3.2b, it does not fall within the scope of IFRS 3.
BASF Report 2021 Management’s Report – Our Steering Concept 42 Our Steering Concept Creating long-term value as a company means more than generating earnings that cover the cost of capital employed. Our steering concept encourages and supports all employees in thinking and acting entrepreneurially. Our key financial management indicator is the return on capital employed (ROCE). The BASF Group’s most important nonfinancial key performance indicators are CO emissions and Accelerator sales. 2 Our financial targets follow a steering concept that is aligned with Calculating ROCE and cost of capital based on the financing costs of the BASF Group. The cost of capital our values. The return on capital employed (ROCE) is used as the percentage for 2022 is 9% (2021: 9%). key target and management indicator for the BASF Group. As ROCE is calculated as the EBIT of the segments as a percentage of stated in our strategic goals, we aim to achieve a ROCE consider- the average cost of capital basis. ably above the cost of capital percentage every year. With ROCE, Calculation of CO emissions 2 the same logic and data is used for our value-based management, To calculate the EBIT of the segments, we take the BASF Group’s external communication with the capital markets and variable EBIT and deduct the EBIT of activities recognized under Other, We calculate our absolute CO emissions on the basis of green- 2 compensation. This means we use the same yardstick for internal which are not allocated to the divisions. house gas emissions, which are the sum of direct emissions from manage ment, employee incentivization and our shareholders’ production processes and the generation of steam and electricity expectations. The cost of capital basis is calculated using the month-end figures (Scope 1), as well as indirect emissions from the purchase of energy and consists of the operating assets of the segments. These com- (Scope 2). Direct emissions from the generation of energy for third As part of our corporate strategy and the sustainability targets prise the current and noncurrent asset items of the segments, parties are not considered here. Relevant emissions include other derived from this, we have also used CO emissions and Accelerator including tangible and intangible fixed assets, integral investments greenhouse gases according to the Greenhouse Gas Protocol, 2 sales as the most important nonfinancial key performance indicators accounted for using the equity method, inventories, trade accounts which are converted into CO equivalents. 2 since the 2020 business year. Two targets are based on these receivable, other receivables and other assets generated by core indicators: sustainability-oriented portfolio management with our business activities and, where appropriate, the assets of disposal We set ourselves even more ambitious targets with our roadmap Sustain able Solution Steering method and reducing absolute CO groups. The cost of capital basis also includes customer and sup- to climate neutrality, which we presented in March 2021: Compared 2 emissions. We reached our Accelerator sales target in 2021, earlier plier financing. with the 2018 baseline, we want to reduce greenhouse gas than planned. Consequently, we will adjust our portfolio steering emissions by 25% by 2030.1 We aim to achieve net zero emissions target over the course of 2022. We have integrated the cost of capital percentage into our (Scope 1 and Scope 2) by 2050. ROCE target as a comparative figure. This is determined using the For more information on CO2 emissions and our climate protection targets, see page 126 onward weighted cost of capital from equity and borrowing costs (weighted average cost of capital, WACC). To calculate a pre-tax figure similar to EBIT, the cost of capital is adjusted using the projected tax rate for the BASF Group for the business year. In addition, the projected net expense of Other is already provided for by an adjustment to the cost of capital percentage. The cost of equity is ascertained using the capital asset pricing model. Borrowing costs are determined 1 In March 2021, we replaced our previous target of CO -neutral growth until 2030 (baseline 2018: 21.9 million metric tons of CO e) with a new, more ambitious climate protection target to reduce absolute CO emissions by 25% compared with 2018 (new target: 16.4 million metric tons of CO e). 2 2 2 2
BASF Report 2021 Management’s Report – Our Steering Concept 43 1 Calculation of Accelerator sales – Capital expenditures (capex) are used to manage capital employed in the BASF Group. These comprise additions to Accelerator sales refer to sales generated by the BASF Group from property, plant and equipment excluding additions from acquisi- products in our strategic portfolio to third parties in the business tions, IT investments, restoration obligations and right-of-use year concerned. Accelerator products make a substantial sustain- assets arising from leases. Capex is not just relevant to ROCE ability contribution in the value chain. In line with our corporate management, but also supports our long-term goal of increasing strategy, we set ourselves the global target of achieving €22 billion our dividend each year based on a strong free cash flow. in Accelerator sales by 2025. This target was already achieved in 2021. Consequently, we will adjust our portfolio steering target over Furthermore, we comment on and forecast sales at Group and the course of 2022. segment level in our financial reporting as a significant driver for EBIT For more information on sustainability-oriented portfolio management, see page 141 onward before special items and thus ROCE. For more information on the development of these indicators, see Results of Operations from page 56 onward Value-based management throughout the company An important part of our value management is the target agreement process, which aligns individual employee targets with BASF’s targets. The most important financial performance indicator in the operating units is ROCE. The other units’ contribution to value is also assessed according to effectiveness and efficiency on the basis of quality and cost targets. To assess this, we use metrics such as BASF’s internal service score in the service units. In addition to ROCE as the BASF Group’s most important financial key performance indicator, we use EBIT before special items and capex (capital expenditure) as key performance indicators that have a direct impact on ROCE and as such, support its management. – EBIT before special items is used to steer profitability at Group and segment level. This is calculated by adjusting the EBIT reported in the Consolidated Financial Statements for special items, making it especially suitable for assessing economic develop ment over time. Special items arise from the integration of acquired businesses, from restructuring measures, certain impairments, gains or losses resulting from divestitures and sales of shareholdings, and other expenses and income that arise out- side of ordinary business activities. 1 The definition of the relevant portfolio and further information can be found in the Sustainable Solution Steering manual at basf.com/en/sustainable-solution-steering
In Focus: Circular Economy BASF Report 2021 Management’s Report – In Focus: Circular Economy 44 In focus: Thinking and Acting Circular As the world’s population grows, so does demand for limited natural resources. At the same time, many recyclable materials end up in landfill or in waste incineration. New concepts are needed to decouple growth from resource consumption. Reduce, reuse and recycle are the keywords of this transition to a system of more sustainable product cycles with less resource consumption and lower carbon emissions. The concept of conserving resources, recycling and feeding waste the recovery of valuable metals from spent batteries and catalytic back into the system is not new for BASF. As early as 1865, it under- converters. pinned the foundation of our company: At that time, Friedrich Engelhorn pursued the idea of producing synthetic dyes from coal In addition, we are developing innovative products and tech- tar – a waste product – and organizing production efficiently in an nologies in many areas that will increase the service life of materials integrated Verbund structure. We are still committed to this tradi- or their recyclability and compostability. One example is additives for tion today and are aligning our actions more strongly than ever with the mechanical recycling of plastics. A Group-wide co-funding pro- circularity. The chemical industry is doubly important for the transi- gram supports our employees in developing new business models tion to a circular economy. Firstly because many value chains start for the circular economy – from the initial idea to market launch. Our here. And secondly because many products and technologies target: By 2030, we want to double our sales of solutions for the based on chemistry help to close loops. That is why both aspects circular economy to €17 billion. These are products that are based – switching to renewable raw materials and innovations for more on alternative raw materials, that close material loops or increase the circularity – are core elements of our Circular Economy Program. resource efficiency and durability of products. For more information on recycled raw materials, see page 115 onward For example, we already use bio-based and renewable raw mate- For more information on sustainable solutions and the circular economy, see page 141 onward rials in our production (see page 113). To further reduce the resource and carbon footprints of our products and solutions, we will align Our circular economy targets our raw material base even more strongly toward recycled and renewable raw materials. For instance, we aim to process 250,000 metric €17 billion 250,000 metric tons of recycled and waste-based raw mate- tons Sales of solutions for the rials in our production plants annually from 2025. Together with Recycled and waste-based raw circular economy by 2030 partners, we are analyzing waste streams and raw material sources materials processed every year to find the best solution and develop suitable, innovative processes from 2025 Together with partners, BASF is developing innovative products (see page 115). This is the case, for example, in the chemical recy- and technologies to improve recyclability and enable resources to cling of used tires and different types of plastics, where we can feed be fed back into the system in the future. One example is chemical recovered raw materials such as pyrolysis oil or monomers back recycling. Find out more about how used tires and mixed plastic waste are converted into new raw materials in the online report into our Verbund structure at different points. Another example is at report.basf.com.
BASF Report 2021 Management’s Report – Our Sustainability Concept 45 Our Sustainability Concept GRI 102, 103, 203, 304, 412, 413, 415, 416 We implement our corporate purpose – We create chemistry for a sustainable future – by systematically incorporating sustainability into our strategy, our business, and into our assessment, steering and compensation systems. We secure our long-term success with products, solutions and technologies that create value added for the environment, society and the economy. Our strategic approach using renewable raw materials, and ongoing measures to further especially SDG 2 (Zero hunger), SDG 5 (Gender equality), SDG 6 increase energy and resource efficiency in our production (see (Clean water and sanitation), SDG 7 (Affordable and clean energy), At a glance page 126). We use the Sustainable Solution Steering method to SDG 8 (Decent work and economic growth), SDG 12 (Responsible improve the sustainability contributions of our product portfolio consumption and production) and SDG 13 (Climate action). To ▪ Sustainability aspects integrated into corporate steering along the value chain (see page 141). To assess the sustainability prioritize these, internal experts assessed the impacts and positive ▪ Targets for climate protection, product portfolio, circular performance of our products and identify solutions with a substantial contributions of our products, our corporate targets and strategic economy, procurement, safety and employees sustainability contribution in the value chain, we regularly reassess action areas. The Value to Society method is used to measure the ▪ Strategic guidelines on stakeholder management and our our product portfolio. We already reached our 2025 sales target for contribution of our activities along the value chain. This assesses our societal engagement Accelerator products in 2021. Consequently, we will update our positive and negative impacts on the environment, society and the product portfolio steering target over the course of 2022. economy (see page 47). Sustainability is at the core of what we do and a driver for growth and value. Analyzing our contributions to sustainability also enables In addition to the climate protection and Accelerator sales targets, We identify key sustainability topics with our comprehensive mate- us to manage risks effectively. We pursue a holistic sustainability we have set ourselves further sustainability goals. A particular focus riality analysis. The graphic on page 46 shows how we assess approach that covers the entire value chain – from our suppliers and is the circular economy due to its strong connection to climate pro- relevant topics. Here, we take into account topics that we have an our own activities to our customers. We have formulated commit- tection. We have defined further targets on water management, impact on, topics that have an impact on us, and topics that our ments for our conduct along the value chain and underpinned these responsible procurement, engaged employees, women in leadership stakeholders consider important to us. The topics identified based with corresponding targets and measures (see page 36). positions, occupational health and safety, and process safety. on these three dimensions of materiality are: climate and energy, health and safety / product stewardship, water, emissions to air Based on our corporate strategy and the global targets derived from We have also set up a project organization to achieve our climate and soil, resource efficiency and waste, biodiversity, human rights, this, we steer the sustainability targets (reduce absolute CO protection targets. The new Net Zero Accelerator unit concentrates employment and diversity. 2 emissions1 by 25% by 2030 compared with baseline 2018 and on implementing and accelerating projects on low-carbon produc- For more information on our materiality analysis, see basf.com/materiality 2 For more information on the metastudy on sustainability trends, see basf.com/sustainability-trends achieve €22 billion in Accelerator sales by 2025) as most important tion technologies, the circular economy and renewable energies. key performance indicators. To this end, we have established the necessary steering mechanisms and control systems at Group level. As a co-founder of the U.N. Global Compact and a recognized Our global activities to reduce greenhouse gas emissions include LEAD company, we contribute to the implementation of the United using renewable energies for both electricity and steam production, Nations’ Agenda 2030. Our products, solutions and technologies developing and applying new low-carbon production processes, help to achieve the U.N. Sustainable Development Goals (SDGs), 1 The target includes Scope 1 and Scope 2 emissions. Other greenhouse gases are converted into CO equivalents in accordance with the Greenhouse Gas Protocol. In March 2021, we replaced our previous target of CO -neutral growth until 2030 (baseline 2018: 21.9 million metric tons of CO e) with a new, more ambitious climate protection 2 2 2 target to reduce absolute CO emissions by 25% compared with 2018 (new target: 16.4 million metric tons of CO e). 2 2 2 Accelerator products make a substantial sustainability contribution in the value chain.
BASF Report 2021 Management’s Report – Our Sustainability Concept 46 1, 2 Our organizational and management structures Identifying and assessing sustainability topics We are constantly working to broaden our contributions to key Materiality BASF evaluation approach dimension sustainability topics and reduce the negative impact of our busi- ness activities. Together with decentrally organized specialists, the Corporate Strategy & Sustainability unit in the Corporate Center Impact of BASF is responsible for integrating sustainability into core business Value to Society method: activities and decision-making processes. This unit’s tasks include – Monetization of positive and the global steering of climate-related matters. negative effects along the value chain Complete list of potentially relevant – Topics with impacts that cannot be topics (around 100) based on expressed in monetary terms included The new Net Zero Accelerator project organization has reported based on relevance for external directly to the Chairman of the Board of Executive Directors since – Prior materiality analyses stakeholders and on assessments of – Value to Society results internal experts January 2022. It focuses on the further acceleration and implemen- – External inquiries tation of existing and new projects to achieve CO reduction targets Material topics 2 Impact on BASF (within the meaning of section at company level worldwide and drives them forward. Prioritization and grouping in – Business units surveyed as part of 289c HGB or relevant under internal workshops strategy development the Global Reporting Initiative) – Positive and negative effects of individual The Board of Executive Directors and the Supervisory Board are sustainability trends on the businesses regularly briefed on the current status of individual sustainability analyzed based on meta-study topics. The Board of Executive Directors incorporates the results and recommendations from sustainability evaluations of business Relevance for – Big data analysis based on processes into its decisions, for example, on proposed investments our stakeholders external publications and acquisitions. It makes decisions with strategic relevance for the – Results complemented and confirmed by surveys and interviews with Group and monitors the implementation of strategic plans and tar- external experts get achievement. The Corporate Sustainability Board, which is composed of heads of business and Corporate Center units and 1 Our stakeholders also confirmed the materiality of the nonfinancial topics that the Value to Society method identified as having an impact along the value chain. regions, supports the Board of Executive Directors on sustainability 2 Quantitative thresholds for defining material topics have not been set due to the complexity of the assessment methods used for each dimension of materiality. The final list of topics is based on an expert comparison of the results of all the assessment approaches described. topics and discusses operational matters. A member of the Board of Executive Directors serves as chair. In 2018, we established our Sustainable Finance Roundtable, which developing recommendations on how the SDGs should be consid- discusses topics related to sustainable finance. Here, experts from ered in financial decisions and in interactions with investors. We systematically evaluate sustainability criteria, including the departments such as Finance, Corporate Strategy, Investor Rela- For more information on our financial and sustainability targets, see pages 36 and 37 effects of climate change, as an integral part of decisions on acqui- tions and Communications discuss upcoming new legal require- For more information on our risk management, see pages 151 to 160 sitions and investments in property, plant and equipment or financial ments. The interdisciplinary group analyzes the steadily growing For more information on the organization of our sustainability management, see assets. In this way, we not only assess economic dimensions, but requirements, assesses the impact on BASF and drives forward the basf.com/sustainabilitymanagement also the potential impacts on areas such as the environment, human necessary change processes as well as the concrete implementa- For more information on compensation structures, see the compensation report at basf.com/compensationreport rights or the local community. We evaluate both the potential tion of measures. In a U.N. Global Compact task force, we are impacts of our activities here as well as which effects we are exposed to.
BASF Report 2021 Management’s Report – Our Sustainability Concept 47 Measuring sustainable value added Overall, the Value to Society method helps us to continually monitor be piloted by all member companies and the results will be fed back our progress. It complements existing concepts for assessing risks to the VBA for further development. We are aware that our business activities can have both positive and and business opportunities by providing a macro perspective and For more information on this method and the results of Value to Society, negative impacts on the environment and society. We aim to enables us to derive the necessary business steps. see basf.com/en/value-to-society increase our positive contributions and minimize the negative For more information on our sustainability tools, see basf.com/en/measurement-methods impacts of our business activities. To achieve this, we need to under- We are a founding member of the value balancing alliance e.V. (VBA) For more information on value balancing alliance e.V., see value-balancing.com stand how our actions and our products impact society and the and have contributed our knowledge and experience to this cross- environment. industry initiative. We support the development of an accounting and reporting standard that makes the value companies provide to Our stakeholder management We already have many years of experience in this area from evaluat- society transparent and comparable. The aim is to present the finan- ing our products and processes using methods such as Eco- cial, ecological, and social impacts of business activities on the basis Our stakeholders include customers, employees, investors, sup- ® Efficiency Analyses, the SEEbalance Socio-Eco-Efficiency Analysis, of a standardized framework. The VBA is supported by major audit- pliers, the communities surrounding our sites, and representatives our Sustainable Solution Steering portfolio analysis, BASF’s corpo- ing firms, the Organisation for Economic Co-operation and Develop- from industry, academia, politics and society. Parts of our business rate carbon footprint or the calculation of Product Carbon Footprints. ment (OECD), leading universities and other partners. Together with activities, such as the use of certain new technologies or our envi- the OECD and the Business for Inclusive Growth (B4IG) coalition, we ronmental impacts, are often viewed by stakeholders with a critical We want to holistically capture the value we contribute to society are pushing to further expand the social indicators. Here, BASF eye. We take these questions seriously, initiate dialogs and partici- along the value chain and make this transparent. However, there are leads the Impact Measurement working group together with pate in discussions. Such ongoing exchange with our stake- still no uniform, global standards for measuring and reporting on partners. Through the VBA, we are involved in the E.U.’s Platform on holders helps us to even better understand what matters to groups companies’ overall impact that cover economic, environmental and Sustainable Finance. Together with the VBA and other partners, we of society, what they expect of us and which measures we need to social aspects of business activities along the value chain. This is supported the establishment of the International Sustainability pursue in order to establish and maintain trust, build partnerships, why we developed the Value to Society method in 2013 together Standard Board (ISSB), are involved in the work of the World Eco- and increase societal acceptance for and the sustainability of our with external experts. We can use this methodological approach to nomic Forum (WEF) and are part of the G7 Impact Taskforce. Our business activities. In doing so, we want to harness potential for compare the significance of financial and sustainability-related Corporate Finance unit is also involved in the work of the European mutual value creation and strengthen societal acceptance of our impacts of our business activities on society and show their interde- Financial Reporting Advisory Group’s (EFRAG) Project Task Force on business activities. For important topics, we systematically identify pendencies. The results illustrate the positive contributions and European sustainability reporting standards. key stakeholders at an early stage to discuss critical questions negative effects, both at BASF and in our value chains. Positive fac- with them. Relevant considerations here include their topic-specific tors include taxes paid, wages, social benefits, employee training The method developed by the VBA was enhanced and refined on expertise and willingness to engage in constructive dialog. 1 and our net income. Negative contributions include environmental the basis of feedback from the scientific community and member impacts such as carbon emissions, land use and emissions to air, companies. Amendments include the addition of two social indica- We established an external, independent Stakeholder Advisory soil and water, as well as health and safety incidents. The positive tors and the calculation of downstream impacts, as well as revisions Council (SAC) in 2013 and the Human Rights Advisory Council 2 impacts of our economic activities declined in 2020, primarily due to to financial indicators, for example. This enhanced method will again (HRAC) in 2020. In the SAC, which is led by the Chairman of the the economic conditions caused by the coronavirus pandemic, Board of Executive Directors, international experts from academia which led to lower economic value added. In addition, higher water and society contribute their perspectives to discussions with BASF’s consumption and increased land use in supplier and customer Board of Executive Directors. The HRAC is an advisory body com- industries had a greater impact on the environment. prising external human rights specialists and internal experts. This helps us to critically reflect on our positions and address potential for improvement. 1 The net income of BASF’s production presented in the Value to Society is calculated using the BASF Group’s net income, adjusted for the interest result, the other financial result and noncontrolling interests. 2 Value to Society results are calculated annually following the publication of the BASF Report. Accordingly, the statements on this in the BASF Report 2021 refer to the evaluation conducted for the 2020 business year.
BASF Report 2021 Management’s Report – Our Sustainability Concept 48 Our political advocacy is conducted in accordance with trans - Stakeholder demands and expectations of BASF parent guidelines and our publicly stated positions. The same applies to our activities in associations. For instance, we again Customers Investors published an Industry Associations Review in 2021 comparing – Innovative and sustainable solutions – Attractive dividend yield the energy and climate protection positions of BASF and the – Reliable partner – Transparency and risk minimization most important associations of which we are a member, with – Cost effectiveness – Strong long-term share performance explanations on our approach. Society: politics, NGOs, media Suppliers BASF does not financially support political parties, for example – Responsible and trustworthy partner – Fair and reliable business relationships through donations in cash or in kind. This is codified in a global – Production of safe products in compliance – Support in complying with our Supplier Code of guideline. In the United States, employees at BASF Corporation with environmental and social standards Conduct (environmental and social requirements) – Jobs and taxes have exercised their right to establish a Political Action Committee (PAC). The BASF Corporation Employee PAC is an independent, federally registered employee association founded in 1998. It Community Employees and management collects donations from employees for political purposes and – Support for local communities – Attractive and fair employer independently decides how these are used, in accordance with – Safe, disruption-free operations – Health protection – Attractive jobs – Opportunities for professional development U.S. law. We have a particular responsibility toward our production sites’ neighbors. With the established community advisory panels, we promote open exchange between residents and our site manage- Our societal engagement approach ment and strengthen trust in our activities. Our globally binding requirements for community advisory panels are based on the Through our societal engagement, we want to help disadvantaged grievance mechanism standards in the United Nations’ Guiding groups tackle their specific challenges – whether through initiatives Principles on Business and Human Rights. We keep track of in our immediate communities or around the world in cooperation their implementation through the existing global database of the with global organizations. We want to foster societal cohesion by Responsible Care Management System. supporting and protecting health, skills and resources. We support For more information on dialog with our stakeholder groups, see page 106 projects that aim to have a lasting impact on specific target groups For more information on our guidelines for responsible lobbying, see and offer learning opportunities for participating cooperation part- basf.com/guidelines_political_communication ners and BASF (see page 106). For more information on the Industry Associations Review, see basf.com/corporategovernance For more information on the Human Rights Advisory Council, see basf.com/human-rights-council In this way, societal engagement is an important part of the imple- For more information on the Stakeholder Advisory Council, see basf.com/en/stakeholder-advisory-council mentation of our sustainability strategy and our corporate social responsibility. Our societal engagement policy provides the guard- rails for our activities in this area. It stipulates that all engagement measures worldwide must be conducted in line with our compliance policy, BASF’s strategy and our sustainability commitments. For more information on our societal engagement, see page 106
BASF Report 2021 Management’s Report – Innovation 49 Innovation GRI 102, 302, 305 Protecting our climate and making the best use of limited natural resources while supplying the fast-growing global population with food, energy and clean water are among the greatest challenges of our time. Innovations based on chemistry play a pivotal role in overcoming these. That is why we are working together with our customers on innovative processes, technologies and products for a more sustainable future. At a glance In 2021, we generated sales of over €11 billion with products We will continue to use corporate funding to finance research of launched on the market in the past five years that stemmed from broad relevance to the BASF Group that goes beyond the industry- €2.2 billion ~820 research and development activities. In the long term, we aim to specific focus of the individual operating divisions. continue significantly increasing sales and earnings with new and Research and development New patents filed improved products – especially with products that make a substan- Research and development expenses by segment 2021 expenses tial sustainability contribution in the value chain (see page 141). Million € 17% 4% ▪ Close cooperation between research and business units Our central research is currently divided into three global divisions, Corporate research, Other Chemicals ▪ Focus on customers’ needs and requirements run from Europe, Asia Pacific and North America: Process 9% ▪ Close cooperation with universities, research institutes and Research & Chemical Engineering (Ludwigshafen, Germany); €2,216 million Materials companies Advanced Materials & Systems Research (Shanghai, China); and 41% 8% Bioscience Research (Research Triangle Park, North Carolina). Agricultural Solutions Industrial Solutions Innovation has always been the key to BASF’s success. The knowl- 13% edge and skills of our highly qualified employees is our most valuable We have already brought our research and development units closer Surface Technologies resource here and the source of our innovative strength. We had together over the past few years. We will reorganize our global 8% Nutrition & Care approximately 10,000 employees involved in research and devel- research activities in 2022 to further strengthen our innovation opment worldwide in 2021. performance and respond to our customers’ industry-specific requirements even better and more quickly going forward. Business Our research and development expenses amounted to and application-driven research units that are currently allocated to €2,216 mil lion in 2021 (2020: €2,086 million). Research and the three corporate research divisions will be integrated into the development activities in our operating divisions, which is mainly operating divisions, aligning them even more closely with the needs application and customer-related, accounted for 83% of this figure. of our customers. The aim is to further shorten the time to market Corporate research, in which we bundle cross-divisional and long- for new products and accelerate BASF’s organic growth. Research term topics, was responsible for 17% of these expenses. activities that are relevant to several operating divisions will be bundled in a central research division steered from Ludwigshafen, Our innovation focus is on developing sustainable solutions for Germany. This unit will continue to be globally organized with our customers. We ensure our long-term competitiveness by helping research centers in Europe, North America and Asia Pacific. our customers reduce their carbon footprint, use resources more Together with the development units in our operating divisions, it efficiently, or manufacture products in a more environmentally friendly forms the core of our global Know-How Verbund. way and to recycle them, to name a few examples.
BASF Report 2021 Management’s Report – Innovation 50 We strengthen existing research focus areas and continually develop We want to continue advancing our research and development Eight Academic Research Alliances new key technologies that are of central significance for our operat- activities, especially in Asia. For instance, in 2021 we started the ing divisions, such as polymer technologies, catalyst processes or third expansion phase for the BASF Innovation Campus in Shanghai, Access to scientific expertise, biotechnological methods. China. With this expansion, BASF will strengthen its research and talented minds and new technologies development capabilities for advanced materials and systems as We promote creative and agile research approaches. We are driving well as for chemical engineering. Construction is expected to be forward the development of new business areas. For example, we completed by the end of 2022. The Northeast Research Alliance (NORA) and the California are developing innovative coating technologies and materials that Research Alliance (CARA) are located in the United States. NORA make innovative surfaces and functions possible. Functional films A strong presence outside Europe creates new opportunities for focuses on materials science and biosciences, catalysis research, can be used to reduce the frictional resistance of surfaces or improve developing and expanding our customer relationships and scientific digitalization and cooperation with startups. Teams at the interdisci- UV protection and weather resistance, for example. Our innovative collaborations as well as for gaining access to talented employees. plinary CARA research center are working on new functional mate- solutions help our customers to achieve their sustainability goals. This strengthens our Research and Development Verbund and rials, formulations, digital methods, catalysis, chemical synthesis, makes BASF an even more attractive partner and employer. and in engineering sciences and biosciences. As part of our Carbon Management R&D Program, we are carrying out intensive research into pioneering, low-carbon production pro- The number and quality of our patents also attest to our power of The Joint Research Network on Advanced Materials and Systems cesses for basic chemicals such as hydrogen (see page 132). This innovation and long-term competitiveness. In 2021, we filed around (JONAS) is active in Europe and concentrates on supramolecular will enable us to offer our customers products with a lower carbon 820 new patents worldwide. The Patent Asset Index, a method that chemistry, polymer chemistry and the incubation of sustainable footprint in the future. compares patent portfolios, once again ranked us among the lead- technologies. We are working on innovative components and mate- ing companies in the chemical industry in 2021. rials for electrochemical energy storage with the Karlsruhe Institute Employees in research and development For more information on innovation, see basf.com/innovations of Technology (KIT) at the Battery and Electrochemistry Laboratory (BELLA). At the joint Catalysis Research Laboratory (CaRLa), BASF is researching homogeneous catalysis in cooperation with the Uni- ~10,000 Global network versity of Heidelberg. BasCat is a joint laboratory operated by the UniCat cluster of excellence and BASF at the Technical University of Our global network of top universities, research institutes and com- Berlin, where new heterogenous catalysis concepts are being panies forms an important part of our Know-How Verbund. It gives explored together with the Fritz Haber Institute of the Max Planck Our global research and development presence – and its effec- us direct access to external scientific expertise, talented minds from Society, also based in Berlin. The iL (Innovation Lab) in Heidelberg, tiveness – is vital to our long-term success. This enables us to various disciplines as well as new technologies – and helps us to Germany, focuses on functional printing, printed sensors and IoT respond to the needs and requirements of the regional markets in a quickly develop targeted, marketable innovations, strengthen our (internet of things) applications. differentiated way and leverage growth potential. portfolio with creative new projects, and in this way, reach our growth targets. At the Network for Asian Open Research (NAO) in the Asia Pacific The Ludwigshafen site in Germany is and will remain the largest in region, research focuses on polymer and colloid chemistry, cataly- our Research Verbund. Investments there include a combined labo- Our eight academic research alliances bundle partnerships with sis, machine learning and smart manufacturing. ratory building for cleanroom and elemental analysis. The new several research groups in a region or with a specific research focus. building’s modern digitalization and automation solutions set new The Academic Research Alliances are complemented by coop- standards in safety and efficiency. It is scheduled to open in 2022. erative partnerships with around 280 universities and research insti- In addition, we will build a new Catalyst Development and Solids tutes as well as collaborations with a large number of companies. Processing Center in Ludwigshafen, Germany, by 2024 to bring For more information on our collaboration initiatives, see basf.com/innovate-with-us process innovations and new chemical catalysts to market faster.
In Focus: From the Lab to Real-World Applications BASF Report 2021 Management’s Report – In Focus: From the Lab to Real-World Applications 51 In focus: From the Lab to Real-World Applications Our aim is to quickly turn ideas into innovations for a sustainable future. To achieve this, we bring together the creativity, experience and expertise of our employees with the know-how of our partners from academia and industry. Recycling industrial off-gases: Industrial off-gases are usually conditions in joint projects with academic partners and closely incinerated or thermally recovered. In both cases, CO is emitted. To coordinated laboratory and field research. The additional integra- 2 avoid this and to recycle the main components of the off-gases so tion of new digital tools and faster screening and testing methods they can be used in chemical production, BASF has been research- enables us to shorten our development times and develop high- ing an innovative process, gas fermentation, with the U.S. startup performance, environmentally compatible ingredients – not only for LanzaTech since 2018. The interdisciplinary team achieved an cleaning purposes, but also for cosmetics and industrial applications important breakthrough in 2021: using special bacteria, they were such as agrochemicals. able to produce n-octanol from carbon monoxide and hydrogen for the first time. The molecule is an alcohol and is used in cosmetics, Animal-free testing methods: The European Union wants to sig- for example. Normally, microorganisms cannot produce n-octanol, nificantly improve the safety of chemical products. BASF supports which is toxic to them. However, using biotechnological methods, this goal and has been actively working to make it a reality for many LanzaTech was able to program the organisms to produce and tol- years. For example, in order to meet expanded requirements and erate n-octanol as part of a gas fermentation process. In parallel, additional testing obligations under the E.U.’s Chemicals Strategy BASF researchers developed a process that enables the continuous for Sustainability in the future, we are developing innovative in vitro separation and purification of n-octanol. Following successful imple- methods with our own laboratory team and together with partners. mentation in the laboratory, the team is now working on further Among other things, they will help us to efficiently and reliably detect process improvements. Integrating gas fermentation technology and evaluate potential hormonal effects of substances – even with- into the BASF Verbund could contribute to a carbon- neutral circular out animal testing. BASF has been researching alternative methods economy in the future. for many years and recently reached an important milestone: In 2021, the OECD approved the world’s first toxicology testing Bio-based and biodegradable ingredients: Circular economy strategy without animal testing – a joint project between BASF and and sustainability are also playing an increasingly important role for Givaudan (see page 123). It can be used to reliably predict whether our customers in the detergent and cleaner industry. That is why a substance causes allergic reactions in the skin without animal interdisciplinary teams at BASF have been working hard on the testing. We make all methods developed by us and approved freely question of how to optimize cleaning performance and environ- available to interested companies and authorities. mental compatibility. The focus here is on new ingredients that can be produced from renewable raw materials and biodegraded at the end of their productive life cycle. This calls for new approaches in research and development. We are developing a funda- mental understanding of how biodegradation occurs under different
BASF Report 2021 Management’s Report – Economic Environment 52 The BASF Group’s Business Year In this section: Economic Environment Results of Operations Net Assets Economic Environment1 Financial Position Actual Development Compared With Outlook for 2021 The global economy recovered more quickly in 2021 from the previous year’s severe slump in economic Business Review by Segment activity than had been expected at the beginning of the year. Many governments’ aid programs and rising Other vaccination rates were key contributing factors to the recovery. Nevertheless, the economic upturn was Non-Integral Oil and Gas Business repeatedly hampered by measures to contain the pandemic and supply chain disruptions. Regional Results For the outlook on the economic environment in 2022, see page 145 onward E.U. Taxonomy 2021 at a glance Trends in the global economy in 2021 GDP rates in 2021 were strongly influenced by base effects. China’s GDP grew at a double-digit rate in the first quarter year on year. In +5.8% >6% The recovery of the global economy varied from region to region in the second quarter, the United States and the European Union then 2021. There were severe restrictions on public life in the first half of recorded very high growth rates. Global growth slowed down, how- Global GDP growth Increase in global industrial the year, particularly in Europe. In the second and third quarters, ever, in the second half of the year. Bottlenecks in global supply and chemical production many Asian countries struggled with coronavirus outbreaks and chains increasingly limited industry growth. Added to this were the ▪ Economic recovery in Europe and the United States, slowing took corresponding countermeasures. China maintained its zero- dampening effects of very high energy prices and a further sharp momentum in Asia Covid strategy throughout the year and responded to the emer- rise in infection rates in individual countries. ▪ Dynamic growth in global industrial production despite fragile gence of any infections with strict containment measures. In the supply chains and stagnating automotive industry United States, most restrictions were eased after the first quarter ▪ Strong growth in the global chemical industry despite sharply rising infection numbers over the course of the year. The steady r eopening of economies was facilitated by increasing ▪ Sharp increase in prices for crude oil and naphtha, vaccination rates. Vaccination rates increased significantly during drastic rise in gas prices the year in Western Europe and the United States, followed by the advanced Asian countries and China with some delay. Other advanced emerging economies, for example in South America, now Global gross domestic product (GDP) grew by 5.8% year on year also have high vaccination rates. In contrast, vaccination rates are (2020: –3.4%). Industrial production expanded by 6.5% (2020: still low in large parts of the poorer countries of Africa and Asia, as –3.0%). Global chemical production grew by 6.1% (2020: –0.1%). well as in Russia. The average price for a barrel of Brent crude oil increased to $71 per barrel (2020: $42 per barrel). 1 All information relating to past years in this section can deviate from the previous year’s report due to statistical revisions. Where available, calendar-adjusted macroeconomic growth rates are reported. Figures for 2021 not yet available in full are estimated.
BASF Report 2021 Management’s Report – Economic Environment 53 Gross domestic product Rapidly rising vaccination rates, as well as the complete reopening the automotive industry. Japan’s GDP only grew by 1.7% (2020: Real change compared with previous year of the U.K. economy from mid-July, contributed to this. However, –4.5%). South Korea saw significantly higher growth of 4.0% (2020: 2021 2020 the consequences of Brexit were felt over the course of the year, –0.9%). World 5.8% –3.4% particularly due to the shortage of labor in logistics chains and skilled E.U.1 5.2% –6.1% trades. The South America region recorded a rapid economic recovery, United States 5.7% –3.4% supported by rising prices for agricultural goods and industrial raw Russia’s GDP grew by 4.3% (2020: –2.9%). Increased oil and gas materials. Domestic demand in some countries was, however, Emerging markets of Asia2 7.3% 0.0% prices led to rising trade surpluses and bolstered growth, while high dampened by currency devaluations and rising inflation rates. Brazil Japan 1.7% –4.5% infection rates and lockdowns weighed on the economy. was able to increase its GDP by 4.7% (2020: –4.2%), bolstered by a South America 6.8% –6.2% considerable rise in exports and investments as well as moderate Economic development in the United States was volatile. Govern- growth in private consumption. Argentina’s economic output grew ment stimulus programs bolstered household demand considerably by a strong 9%, though the previous year’s decline had been signifi- Economic trends by region early in the year, which resulted in strong GDP growth in the first two cantly larger at nearly –10%. For the region as a whole, GDP rose by quarters. However, due to the expiration of aid benefits and a further 6.8% in 2021, after a decline of approximately the same magnitude In the European Union (E.U.), GDP grew by 5.2% (2020: –6.1%). rise in infection rates coupled with increasing supply problems due in the previous year. At the beginning of the year, restrictions in stationary retail, hospi- to congestion in the country’s largest ports, growth in private con- tality, tourism, and the cultural and entertainment sectors negatively sumption was more sluggish in the second half of the year. In total, impacted economic recovery. In the course of the second quarter, GDP in the United States grew by 5.7% in 2021 (2020: –3.4%). Trends in key customer industries the restrictions were successively relaxed as a result of falling infec- tion rates. At the same time, the vaccination campaign, which got In the emerging markets of Asia, growth weakened significantly in Growth in industrial production was negatively impacted by supply off to a slow start due to a shortage of vaccines, gained momentum. the course of the year. China’s dynamic recovery that began in the difficulties in 2021. In many areas, existing orders could not be pro- Due to base effects, GDP growth in the second quarter was in the previous year continued initially. However, mobility restrictions and cessed due to a lack of intermediate goods. Transport capacities, double digits compared with the previous year. There was, however, selective lockdowns, even with only few occurrences of coronavirus especially ship and container capacities in overseas trade, were not also a significant upturn in the second and third quarters of 2021 infections, as well as more restrictive financing conditions in the sufficient to meet the sharp rise in demand for industrial goods. compared with the first quarter, especially in European tourist construction sector, negatively affected domestic demand growth. Furthermore, manufacturing disruptions in Asia due to regional destinations. In France (+7.0%), Italy (+6.4%) and Spain (+5.0%), In addition, energy was rationed. By contrast, export demand grew lockdowns were also a factor. GDP grew especially dynamically in 2021. By c ontrast, Germany significantly. In total, the Chinese economy expanded by 8.1% was hit harder by bottlenecks in intermediate inputs for the invest- (2020: 2.2%). Many other emerging markets in Asia, including India, Global industrial production grew by 6.5% in 2021 (2020: –3.0%). ment goods and automotive industries. At 2.8%, Germany’s Malaysia and Thailand, were forced to temporarily adopt restrictive The advanced economies saw somewhat lower growth of 5.3% economy thus grew at a below-average rate in 2021. Despite lower measures to contain waves of infection. All in all, the region grew by overall than the emerging markets, which saw a rise of 7.4%. The vaccination rates and higher infection rates, growth in the eastern 7.3% in 2021. largest contribution to global industrial production growth came E.U. countries (+5.3%) was at a similar level to that in the western from China (2021: +8.4%; 2020: +3.7%). Around 30% of global E.U. countries (+5.2%). The economies of Japan and South Korea were also significantly industrial value creation and almost 40% of its growth were gen er- impacted by the pandemic. Japan temporarily declared a state of ated there. In total, over 50% of global industrial growth came from Despite the end of the Brexit transition period at the beginning of the emergency. Private consumption was thus only able to increase Asia. The region’s production expanded by 7.5% in 2021 (2020: year, the United Kingdom’s economy (2021: +7.5%) recovered slightly. Although exports rose considerably, they were negatively –0.1%). substantially from its major slump in the previous year (2020: –9.4%). affected by the decline in growth in China and supply bottlenecks in 1 In this chapter, “E.U.” refers to the E.U. 27. 2 We define the emerging markets of Asia as Greater China, the ASEAN countries (Brunei, Indonesia, Malaysia, Myanmar, Cambodia, Laos, the Philippines, Singapore, Thailand, Vietnam), India, Pakistan and Bangladesh.
BASF Report 2021 Management’s Report – Economic Environment 54 In the E.U., industrial production also increased significantly by 6.6% The construction industry expanded by around 4% (2020: –1.1%) Also above average, agricultural production grew by 3.2%, as the (2020: –7.1%). After the sharp decline in the previous year, the despite a sharp rise in prices for scarce building materials. Growth overall negative impact of extreme weather events on yields was United Kingdom saw growth of 8.3% (2020: –10.4%). By contrast, was strongest in residential construction at almost 6%. Here, the minor relative to recent years and global demand for agricultural North America’s industrial growth was below average at 5.0% rising demand for housing during the pandemic played a key role; goods increased dynamically due to economic recovery. Growth (2020: –4.8%). South America recorded an increase just above the furthermore, government transfers and persistently low interest was driven primarily by Asia (+5.3%). By contrast, production growth global average (2021: 7.0%; 2020: –6.5%). rates strengthened the purchasing power of private households. was only weak in South America (+1.2%) and even declined slightly Growth in residential construction was particularly high in the United in North America and Europe. Growth in key customer industries States. Residential construction in Europe grew only slightly above Real change compared with previous year the overall market average. In China, on the other hand, residential 2021 2020 construction cooled significantly in the wake of the government’s Trends in the chemical industry Industry total 6.5% –3.0% efforts to limit real estate prices and debt. Commercial construction Transportation 2.5% –16.6% investments remained weak with growth of less than 3%. Growth in Global growth in the chemical industry was 6.1% in 2021, almost as Of which: automotive industry 2.5% –15.9% the less volatile infrastructure segment was also below average at high as growth for the industry as a whole, despite only a minimal around 3%. decline in chemical production in the previous year unlike in many Energy and resources 3.3% –3.5% other industries. While the stronger performance in the previous year Construction 3.9% –1.1% After a decline of 2.7% in the previous year, consumer goods pro- had mainly been due to extraordinary pandemic-related demand for Consumer goods 9.0% –2.7% duction grew by a total of 9.0%. High growth rates between around disinfectants, cleaning agents and single-use plastics, as well as to Electronics 12.0% 3.2% 9% and 13% were recorded in the furniture and textile industries as the early recovery in China, in 2021, the global upswing in many Health and nutrition 6.4% 0.2% well as in the production of electrical appliances. Expansion in the consumer goods industries contributed to growth. care products sector was, by contrast, more modest at 4.3%. This Agriculture 3.2% 2.0% industry had not contracted in the previous year and was therefore Chemical production in China, the world’s largest chemical market, less able to benefit from base effects. saw especially strong expansion (+7.7%). However, growth slowed Global automotive production was particularly affected by supply at a high level during the course of the year. Electricity cuts had a problems with semiconductors. Although base effects ensured The electronics sector saw above-average growth of 12%. It negative effect on production, particularly in the third and fourth strong growth at the beginning of the year, the shortage in semicon- bene fited from the general trend toward digitalization and con nec- quarters. Growth in other emerging markets of Asia was also high at ductors worsened so significantly in the second half of the year that tivity, as well as from demand for consumer electronics and elec- around 6.9%. many automotive manufacturers had to respond by cutting produc- tronic control of household appliances and motor vehicles. Growth tion or even temporarily shutting down entire plants. As a result, was slowed by capacity bottlenecks in the production of computer Chemical production growth in the European Union was also automotive production grew only slightly overall by 2.5% in 2021 chips. extraor dinarily high at 6.0%. A contributing factor was the low basis after contracting by 15.9% in the previous year. Production levels in the previous year (2020: –2.1%). In addition, the European chemi- remained exceptionally low, with a total of around 76 million vehicles Global demand for energy and industrial raw materials rose sharply cal industry benefited from the fact that availability of global produc- produced worldwide. Similarly low production volumes had last in 2021. Production in the energy and raw materials sector, how- tion capacities for basic chemicals was intermittently limited. The been recorded in the early 2010s. Moderate growth was achieved in ever, only increased by 3.3% (2020: –3.5%), which resulted in sig- Middle East (+6.2%) also recorded solid production growth. Asia (+5.1%). The North American market stagnated (+0.1%). In the nifi cant price increases. The health and nutrition sector achieved E.U., by contrast, production decreased by 6.2% in 2021, following growth of 6.4%, which was above average for recent years due to By contrast, significant petrochemical capacities were temporarily a decline of nearly 25% in 2020. Of all the regions, South America 15% growth in the pharmaceuticals industry resulting from vaccine unavailable in the United States, in particular. After the cold spell in achieved the highest growth rate; however, it saw the strongest production. Production in the food industry grew by 3.7%, which, by the first quarter, production on the U.S. Gulf Coast was negatively decrease in the previous year (2021: +16.1%; 2020: –31.1%). contrast, was just slightly better than the long-term average. impacted by hurricanes Ida and Nicholas as well. In total, production
BASF Report 2021 Management’s Report – Economic Environment 55 in the United States thus only grew by 1.8% in 2021. Chemical Price trends for crude oil (Brent) and naphtha production in South America increased by 4.6%. $/barrel, $/metric ton $/t $/bbl Chemical production (excluding pharmaceuticals) 1,100 130 Real change compared with previous year 1,000 120 2021 2020 900 Naphtha Crude oil 110 800 ø 2021: $635/t ø 2021: $71/bbl 100 World 6.1% –0.1% ø 2020: $355/t ø 2020: $42/bbl European Union 6.0% –2.1% 700 90 600 80 United States 1.8% –3.5% 500 70 Emerging markets of Asia 7.6% 2.4% 400 60 Japan 3.7% –12.7% 300 50 South America 4.6% –0.6% 200 40 100 30 0 20 Price trends for key commodities Following the slump in 2020, raw materials prices rose sharply over Jan 20Feb 20Mar 20Apr 20May 20June 20July 20Aug 20Sept 20Oct 20Nov 20Dec 20Jan 21Feb 21Mar 21Apr 21May 21June 21July 21Aug 21Sept 21Oct 21Nov 21Dec 21 the course of 2021. Global oil demand increased significantly again, but supply was only augmented modestly by OPEC+. As a result, the average price for reference Brent crude oil increased to level ($1.99 per mmBtu). Gas prices in China averaged around $71 per barrel (2020: $42 per barrel). The price of oil fluctuated over $6.72 per mmBtu nationally (2020: $6.29 per mmBtu), while the the course of the year between around $55 per barrel in January average price in the coastal provinces was $7.99 per mmBtu and around $84 per barrel in October. (2020: $7.48 per mmBtu). Over the course of the year, the average monthly price for the chemi cal raw material naphtha ranged between $501 per metric ton in January and $764 per metric ton in October. At $635 per metric ton, the annualized average price of naphtha in 2021 was signifi- cantly higher than in 2020 ($355 per metric ton). High demand from Asia, cold weather and low storage levels in Western Europe, as well as a limited supply of liquid natural gas led to sharp increases in gas prices. At $16.02 per mmBtu, the average price of gas on the European spot market in particular was significantly higher than in 2020 ($3.17 per mmBtu). It rose from an average price of $6.56 per mmBtu in the first quarter to $31.92 per mmBtu in the fourth quarter. The average price of gas in the United States was $3.89 per mmBtu, likewise well above the prior-year
BASF Report 2021 Management’s Report – Results of Operations 56 Results of Operations Salesa, b recorded considerably lower EBIT before special items. The decline Million € in earnings in the Nutrition & Care segment was mainly attributable The global economy recovered much more strongly than we to lower margins on the back of higher raw materials and energy expected in 2021 following the severe slump in the previous 2021 78,598 prices, as well as an increase in fixed costs. EBIT before special year due to the effects of the coronavirus pandemic. Many 2020 59,149 items was lower in the Agricultural Solutions segment, largely due to governments’ aid programs and rising vaccination rates were 2019 59,316 higher fixed costs, higher raw materials prices and logistics costs, key contributing factors to this. In this market environment, 2018 60,220 and a low-margin product mix. The segment’s earnings were addi- growth in global industrial production and in the global 2017 61,223 tionally weighed down by negative currency effects. chemical industry (excluding pharmaceuticals) was also For an explanation of the indicator EBIT before special items, see page 43 significantly above the prior-year level and the long-term a Sales for 2018 were reduced by the share attributable to construction chemicals activities due to their presentation as discontinued operations. Figures for 2017 have not been restated. average. BASF’s business also developed favorably: We b Sales for 2017 were reduced by the share attributable to oil and gas activities due to their presentation as discontinued operations. considerably increased sales and earnings. EBIT before special itemsa, b, c For more information on the development of Accelerator sales, see page 141 onward Million € Business reviews by segment can be found from page 69 onward For more information on the development of CO emissions, see page 127 2 2021 7,768 At a glance Factors influencing sales of the BASF Group 2020 3,560 2019 4,643 Change Change ▪ Sales and EBIT before special items considerably above in million € in % 2018 6,281 prior year Volumes 6,279 10.6 2017 7,645 ▪ Considerable increase in ROCE to 13.5% Prices 14,673 24.8 a EBIT for 2019 has been restated to reflect the reclassification of income from non-integral companies ▪ Net income from shareholdings improves by €1,116 million accounted for using the equity method to net income from shareholdings. Figures for the years 2017 Currencies –1,439 –2.4 and 2018 have not been restated. b EBIT before special items for 2018 was reduced by the share attributable to construction chemicals ▪ Earnings per share of €6.01; adjusted earnings per share Acquisitions 431 0.7 activities due to their presentation as discontinued operations. Figures for 2017 have not been restated. of €6.76 c EBIT before special items for 2017 was reduced by the share attributable to oil and gas activities due to Divestitures –495 –0.8 their presentation as discontinued operations. Changes in the scope of consolidation –1 0.0 Sales rose by €19,449 million compared with the previous year to €78,598 million in 2021. This was mainly driven by higher prices and Total change in sales 19,449 32.9 Special items in EBIT totaled –€91 million in 2021, compared with volumes in all segments. Price levels increased in the Chemicals, –€3,751 million in the previous year, which was strongly impacted by Surface Technologies and Materials segments in particular. Sales Income from operations (EBIT) before special items rose by impairments on property, plant and equipment and intangible assets volumes grew primarily in the Surface Technologies and Materials €4,208 million to €7,768 million, largely due to considerably higher in the total amount of around €2.9 billion. In 2021, restructuring segments. Currency effects, mainly relating to the U.S. dollar, had an earnings in the Chemicals and Materials segments. Earnings devel- measures gave rise to expenses of €99 million (2020: expenses of offsetting effect. Sales performance was also weighed down by opment in the Chemicals segment was primarily driven by higher €952 million), mainly in the Agricultural Solutions and Materials negative portfolio effects, especially in the Industrial Solutions seg- margins, higher sales volumes and an improvement in equity- segments and in Other. The release of provisions in connection with ment following the divestiture of the global pigments business. This accounted income. Earnings growth in the Materials segment was the restructuring of the Global Business Services unit had an off- could only be partly offset by positive portfolio effects, mainly from mainly attributable to higher margins in isocyanates and polyamides, setting effect. Integration costs amounted to €85 million (2020: inte- the acquisition of a majority shareholding in BASF Shanshan Battery as well as positive volume development. EBIT before special items gration costs of €157 million) and primarily related to the integration Materials Co., Ltd. in the Surface Technologies segment. also improved considerably in the Surface Technologies and Indus- of the acquired BASF Shanshan companies and the polyamide trial Solutions segments, largely as a result of higher volumes. By business acquired from Solvay in 2020. Divestitures, which also contrast, the Nutrition & Care and Agricultural Solutions segments included the disposal of the global pigments business, gave rise to
BASF Report 2021 Management’s Report – Results of Operations 57 special income totaling €120 million, especially from the sale of our EBITa, b, c ROCE production site in Kankakee, Illinois, the Coatings division’s precision Million € Million € micro chemicals business and our share in the condensate splitter in 2021 2020 Port Arthur, Texas. Other items led to special charges in the total 2021 7,677 EBIT of BASF Group 7,677 –191 amount of €27 million. 2020 –191 – EBIT of Other –641 –1,203 For the definition of special items, see page 43 2019 4,201 EBIT of the segments 8,317 1,012 2018 5,974 Cost of capital basis of segments, 61,579 60,111 7,587 average of month-end figures 2017 Special items ROCE % 13.5 1.7 Million € a EBIT for 2019 has been restated to reflect the reclassification of income from non-integral companies 2021 2020 accounted for using the equity method to net income from shareholdings. Figures for the years 2017 and 2018 have not been restated. b EBIT before special items for 2018 was reduced by the share attributable to construction chemicals Restructuring measures –99 –952 activities due to their presentation as discontinued operations. Figures for 2017 have not been restated. Capital employed c EBIT for 2017 was reduced by the share attributable to oil and gas activities due to their presentation as Integration costs –85 –157 discontinued operations. Million € 2021 2020 Divestitures 120 –76 We use the indicator return on capital employed (ROCE). ROCE Intangible assets 13,143 14,249 Other charges and income –27 –2,566 was 13.5%, after 1.7% in the previous year. The increase in ROCE + Property, plant and equipment 19,280 20,210 Total special items in EBIT –91 –3,751 1 was primarily due to considerably higher EBIT. + Integral investments accounted for using the 1,682 1,395 For more information on the calculation of ROCE, see page 42 equity method At €7,677 million, EBIT for the BASF Group in 2021 was consider- The calculation of EBIT as part of our statement of income is shown in the Consolidated Financial + Inventories 11,459 10,469 ably above the previous year, which was impacted by high impair- Statements on page 194 + Accounts receivable, trade 11,588 9,379 ments. This figure includes income from integral companies + Current and noncurrent other receivables a 3,908 3,149 accounted for using the equity method, which rose by €455 million and other assets to €675 million. This was mainly attributable to the business-related + Assets of disposal groups 520 1,260 increase in the earnings contributed by BASF-YPC Company Ltd., Cost of capital basis of segments, Nanjing, China, which rose by €343 million. average of month-end figures 61,579 60,111 + Deviation from cost of capital basis at 2,688 –3,948 closing rates as of December 31 + Assets not included in cost of capital 23,115 24,129 Assets of the BASF Group as of December 31 87,383 80,292 a Including customer/supplier financing and other adjustments 1 For more information on net assets, see page 61 onward
BASF Report 2021 Management’s Report – Results of Operations 58 Net income from shareholdings, financial result and income Income after taxes in the amount of €5,982 million (2020: is also highly useful in making comparisons over time. The EBITDA after taxes –€1,075 million) included €5,523 million attributable to shareholders margin is a relative indicator and is calculated as the ratio of EBITDA of BASF SE (2020: –€1,060 million). Noncontrolling interests to sales revenue, enabling operational performance to be compared Net income from shareholdings was above the prior-year figure, amounted to €459 million, after –€15 million in the prior year. This independent of the size of the underlying business. rising by €1,116 million to €207 million in 2021 (2020: –€909 million). mainly resulted from a higher earnings contribution from BASF The increase was mainly due to special income from the sale of our TotalEnergies Petrochemicals LLC in Port Arthur, Texas, and a EBITDA before special items rose by €3,913 million year on year to shares in Solenis (€589 million) as well as the improved earnings positive earnings contribution fr om BASF Petronas Chemicals Sdn. €11,348 million in 2021. At €11,355 million, EBITDA was €4,861 mil- contribution from Wintershall Dea AG (–€344 million). This included Bhd. Petaling Jaya, Malaysia, where earnings in the prior year had lion above the prior-year figure. The EBITDA margin was 14.4% in impairments in the amount of €581 million, less than in the prior been impacted by impairments. 2021, compared with 11.0% in the previous year. year. In 2021, earnings per share amounted to €6.01, compared with The financial result amounted to –€436 million, compared with –€1.15 in the previous year. EBITDA before special items –€462 million in the previous year. The interest result improved by For more information on the items in the statement of income, see the Notes to the Consolidated Million € €59 million overall, due in part to lower interest expenses for financial Financial Statements from page 200 onward 2021 2020 indebtedness. The other financial result amounted to –€122 million For more information on the tax rate, see Note 12 to the Consolidated Financial Statements from EBIT 7,677 –191 page 231 onward after –€89 million in 2020, primarily driven by higher net expenses in – Special items –91 –3,751 connection with bonds in foreign currency and the corresponding EBIT before special items 7,768 3,560 hedging instruments. Lower write-downs on securities and loans, as Additional indicators for results of operations + Depreciation and amortization 3,534 3,805 well as a lower net interest expense from pension plans and similar + Impairments and reversals of impairments obligations had an offsetting effect. We also use alternative performance measures (APMs) to steer the on property, plant and equipment and intangible 45 70 BASF Group. Investors, analysts and rating agencies use them to assets before special items Income before income taxes amounted to €7,448 million in 2021, assess our performance. These are not defined by IFRS. As such, Depreciation, amortization, impairments and after –€1,562 million in 2020. the methods of calculation can differ from those used by other reversals of impairments on property, plant and 3,580 3,875 equipment and intangible assets before special companies. Alternative performance measures for the results of items Income tax expenses were €1,430 million, after the negative pre-tax operations are EBIT before special items, EBITDA before special EBITDA before special items 11,348 7,435 result had led to tax income of €91 million in the previous year. items, EBITDA, the EBITDA margin and adjusted earnings per share. 1 1 Other APMs are net debt, free cash flow and capital expenditure 2 Compared with 2020, income after taxes from continuing opera- (capex). tions rose by €7,489 million to €6,018 million. Income after taxes from discontinued operations amounting to –€36 million resulted Income from operations before depreciation, amortization and from purchase price adjustments for the divestiture of the construc- special items (EBITDA before special items) and income from tion chemicals business. The prior-year figure of €396 million operations before depreciation and amortization (EBITDA) are included the book gain from the sale of the former Construction indicators that describe operational performance independent of Chemicals division and its operating income after taxes until age-related depreciation and amortization of assets and any impair- divestiture. ment or reversal of impairment. Both figures are therefore particularly useful in cross-company comparisons. EBITDA before special items 1 For more information on these indicators, see the Financial Position from page 63 onward 2 For more information on capex, see Our Steering Concept on page 43 and Material Investments and Portfolio Measures on page 38
BASF Report 2021 Management’s Report – Results of Operations 59 EBITDA Compared with earnings per share, adjusted earnings per share is Million € firstly adjusted for special items. Amortization, impairment and 2021 2020 reversal of impairment on intangible assets are then eliminated. EBIT 7,677 –191 Amortization of intangible assets primarily results from the purchase + Depreciation and amortization 3,534 3,805 price allocation following acquisitions and is therefore of a temporary + Impairments and reversals of impairments on nature. The effects of these adjustments on income taxes and on property, plant and equipment and intangible 144 2,880 noncontrolling interests are also considered. This makes adjusted assets earnings per share a suitable measure for making comparisons over Depreciation, amortization, impairments and time and predicting future profitability. reversals of impairments on property, plant 3,678 6,685 and equipment and intangible assets EBITDA 11,355 6,494 In 2021, adjusted earnings per share amounted to €6.76, compared Sales revenue 78,598 59,149 with €3.21 in the previous year. EBITDA margin % 14.4 11.0 For more information on the earnings per share according to IFRS, see Note 6 to the Consolidated Financial Statements on page 220 Adjusted earnings per share Million € 2021 2020 Income after taxes 5,982 –1,075 – Special itemsa –181 –4,606 + Amortization, impairments and reversals of impairments on 614 1,496 intangible assets – Amortization, impairments and reversals of impairments on 0 819 intangible assets contained in special items – Adjustments to income taxes 116 958 – Adjustments to income after taxes from discontinued –36 251 operations Adjusted income after taxes 6,695 2,999 – Adjusted noncontrolling interests 483 54 Adjusted net income 6,212 2,945 Weighted average number of outstanding shares (in thousands) 918,479 918,479 Adjusted earnings per share € 6.76 3.21 a Includes special items in net income from shareholdings of €90 million for 2021 and €855 million for 2020
BASF Report 2021 Management’s Report – Results of Operations 60 Sales and earnings Sales and earnings by quarter in 2021a Million € Million € 2021 2020 +/– Q1 Q2 Q3 Q4 Full year Sales 78,598 59,149 32.9% Sales 19,400 19,753 19,669 19,776 78,598 Income from operations before depreciation, 11,348 7,435 52.6% Income from operations before depreciation, amortization and special items 3,181 3,217 2,771 2,179 11,348 amortization and special items Income from operations before depreciation and amortization (EBITDA) 3,176 3,199 2,729 2,250 11,355 Income from operations before depreciation 11,355 6,494 74.9% and amortization (EBITDA) Depreciation and amortizationb 865 883 907 1,023 3,678 EBITDA margin % 14.4 11.0 − Income from operations (EBIT) 2,311 2,316 1,822 1,227 7,677 Depreciation and amortizationa 3,678 6,685 –45.0% Special items −10 −39 −43 1 −91 Income from operations (EBIT) 7,677 –191 . EBIT before special items 2,321 2,355 1,865 1,227 7,768 Special items –91 –3,751 97.6% Income before income taxes 2,247 2,189 1,777 1,235 7,448 EBIT before special items 7,768 3,560 118.2% Income after taxes from continuing operations 1,810 1,794 1,424 990 6,018 Income before income taxes 7,448 –1,562 . Income after taxes from discontinued operations − − −43 7 −36 Income after taxes from continuing operations 6,018 –1,471 . Net income 1,718 1,654 1,253 898 5,523 Income after taxes from discontinued –36 396 . Earnings per share € 1.87 1.80 1.36 0.98 6.01 operations Adjusted earnings per share € 2.00 2.03 1.56 1.17 6.76 Net income 5,523 –1,060 . Earnings per share € 6.01 −1.15 . Sales and earnings by quarter in 2020a Adjusted earnings per share € 6.76 3.21 110.6% Million € Q1 Q2 Q3 Q4 Full year a Depreciation and amortization of property, plant and equipment and intangible assets (including impairments Sales 16,753 12,680 13,811 15,905 59,149 and reversals of impairments) Income from operations before depreciation, amortization and special items 2,579 1,229 1,542 2,085 7,435 Income from operations before depreciation and amortization (EBITDA) 2,428 1,070 1,044 1,952 6,494 Depreciation and amortizationb 972 1,011 3,682 1,020 6,685 Income from operations (EBIT) 1,456 59 −2,638 932 −191 Special items −184 −167 −3,219 −181 −3,751 EBIT before special items 1,640 226 581 1,113 3,560 Income before income taxes 1,200 −923 −2,786 947 −1,562 Income after taxes from continuing operations 881 −888 −2,177 713 −1,471 Income after taxes from discontinued operations 22 14 13 347 396 Net income 885 −878 −2,122 1,055 −1,060 Earnings per share € 0.97 −0.96 −2.31 1.15 −1.15 Adjusted earnings per share € 1.26 0.25 0.60 1.10 3.21 a Quarterly results not audited b Depreciation and amortization of property, plant and equipment and intangible assets (including impairments and reversals of impairments)
BASF Report 2021 Management’s Report – Net Assets 61 Net Assets Assets Assets December 31, 2021 December 31, 2020 Million € % Million € % At a glance Intangible assets 13,499 15.4 13,145 16.4 Property, plant and equipment 21,553 24.7 19,647 24.5 ▪ Increase in total assets to €87,383 million mainly due to higher current assets Integral investments accounted for using the equity method 2,540 2.9 1,878 2.3 ▪ Intangible fixed assets and property, plant and equipment around Non-integral investments accounted for using the equity method 9,843 11.3 10,874 13.5 €2.3 billion above the prior year -end figure overall Other financial assets 575 0.7 582 0.7 Deferred tax assets 2,600 3.0 3,386 4.2 Total assets amounted to €87,383 million as of December 31, 2021, Other receivables and miscellaneous assets 1,722 2.0 912 1.1 €7,091 million above the prior-year level. Noncurrent assets 52,332 59.9 50,424 62.7 Noncurrent assets rose by €1,908 million to €52,332 million. This Inventories 13,868 15.9 10,010 12.5 was mainly attributable to the €1,906 million increase in property, plant and equipment. Additions to property, plant and equipment Accounts receivable, trade 11,942 13.7 9,466 11.8 amounted to €4,410 million and included €332 million in connection Other receivables and miscellaneous assets 5,568 6.4 4,673 5.8 with the formation of BASF Shanshan Battery Materials Co., Ltd. Marketable securities 208 0.2 207 0.3 Currency effects of €798 million also contributed to the increase. Cash and cash equivalents 2,624 3.0 4,330 5.4 Depreciation amounted to €2,922 million. Intangible assets amounted Assets of disposal groups 840 1.0 1,182 1.5 to €13,499 million, €354 million above the prior year-end figure. The increase was due in particular to currency effects in the amount Current assets 35,051 40.2 29,868 37.3 of €572 million. Additions to intangible assets totaled €470 million Total assets 87,383 100.0 80,292 100.0 and included €392 million from the formation of BASF Shanshan Battery Materials, of which goodwill was €254 million. Amortization of €612 million had an offsetting effect. For more information on the above transactions see page 41 of this Management’s Report and Note 3 to the Consolidated Financial Statements from page 207 onward
BASF Report 2021 Management’s Report – Net Assets 62 Noncurrent other receivables and miscellaneous assets amounted Assets of disposal groups amounted to €840 million as of Decem- to €1,722 million, up €810 million from the prior-year level. This pri- ber 31, 2021. These include the assets of the shareholding in the marily resulted from higher defined benefit assets and derivatives Hollandse Kust Zuid wind farm and the kaolin minerals business, with positive fair values. which is held for sale. For more information on the composition and development of individual asset items, see the Notes to Integral investments accounted for using the equity method rose by the Consolidated Financial Statements from page 200 onward €662 million year on year to €2,540 million, mainly due to positive after-tax earnings at BASF YPC-Company Ltd., Nanjing, China, and positive currency effects. The €1,031 million decline in the carrying amounts of non-integral shareholdings accounted for using the equity method compared with December 31, 2020, was largely attributable to dividend pay- ments by and negative after-tax earnings at Wintershall Dea AG and to the disposal of the shareholding in Solenis. Other financial assets decreased by €7 million compared with the prior year-end figure. Deferred tax assets declined by €786 million, primarily as a result of lower pension provisions. Current assets rose by €5,183 million to €35,051 million. This was driven by the €3,858 million increase in inventories compared with the prior year-end as a result of higher raw materials prices and the stronger business performance in 2021. The €2,476 million increase in trade accounts receivable was also mainly due to strong business development. Other receivables and miscellaneous assets rose by €895 million, primarily due to higher tax refund claims and positive fair values of derivatives. The €1,706 million decrease in cash and cash equivalents compared with the figure as of December 31, 2020, to €2,624 million had an offsetting effect.
BASF Report 2021 Management’s Report – Financial Position 63 Financial Position Equity and liabilities Equity and liabilities December 31, 2021 December 31, 2020 Million € % Million € % At a glance Subscribed capital and capital reserves 4,282 4.9 4,291 5.3 Retained earnings 40,365 46.2 37,911 47.2 ▪ Equity ratio of 48.2% after 42.8% in previous year Other comprehensive income –3,855 –4.4 –8,474 –10.6 ▪ Net debt slightly reduced to €14,352 million Noncontrolling interests 1,289 1.5 670 0.8 ▪ Rated A by Standard & Poor’s, Moody’s and Fitch Equity 42,081 48.2 34,398 42.8 ▪ Cash flows from operating activities and free cash flow higher year on year Provisions for pensions and similar obligations 6,160 7.0 8,566 10.7 Deferred tax liabilities 1,499 1.7 1,447 1.8 Equity rose by €7,683 million compared with the previous year to Tax provisions 415 0.5 587 0.7 €42,081 million. Retained earnings rose by €2,454 million, mainly Other provisions 1,782 2.0 1,484 1.8 because net income significantly exceeded the dividend payments of €3,031 million disbursed in the second quarter of 2021. Other Financial indebtedness 13,764 15.8 15,819 19.7 comprehensive income increased equity by €4,619 million, primarily Other liabilities 1,600 1.8 1,711 2.1 as a result of actuarial gains and currency effects. Noncurrent liabilities 25,220 28.8 29,614 36.9 The equity ratio improved from 42.8% to 48.2%. Accounts payable, trade 7,826 9.0 5,291 6.6 Compared with the 2020 year-end, noncurrent liabilities declined Provisions 3,935 4.5 2,825 3.5 by €4,394 million to €25,220 million. This was primarily attributable Tax liabilities 1,161 1.3 988 1.2 to the €2,406 million decrease in provisions for pensions and similar Financial indebtedness 3,420 3.9 3,395 4.3 obligations, mainly as a result of higher interest rates in all relevant Other liabilities 3,679 4.2 3,440 4.3 currency zones and returns on plan assets. Liabilities of disposal groups 61 0.1 341 0.4 Current liabilities 20,081 23.0 16,280 20.3 Furthermore, noncurrent financial indebtedness declined by €2,055 million. This was primarily due to the reclassification of three Total equity and liabilities 87,383 100.0 80,292 100.0 bonds with an aggregate carrying amount of €1,936 million and a loan in the amount of €240 million to current financial indebtedness. Exchange rates and interest had an offsetting effect. Tax provisions declined by €172 million year on year to €415 million. By contrast, deferred tax liabilities were slightly above the prior year- end figure, at €1,499 million.
BASF Report 2021 Management’s Report – Financial Position 64 The €111 million decrease in other noncurrent liabilities largely Net debt Maturities of financial indebtedness resulted from lower negative fair values of derivatives. Million € Million € December 31, December 31, 2022 3,420 2021 2020 Other provisions rose by €298 million, mainly due to higher environ- Noncurrent financial indebtedness 13,764 15,819 2023 2,208 mental provisions. 2024 1,280 + Current financial indebtedness 3,420 3,395 At €20,081 million, current liabilities were €3,801 million above the Financial indebtedness 17,184 19,214 2025 1,892 figure as of December 31, 2020. This was primarily due to the – Marketable securities 208 207 2026 1,177 €2,535 million increase in trade accounts payable, largely as a result – Cash and cash equivalents 2,624 4,330 2027 and beyond 7,207 of positive business development. In addition, current provisions Net debt 14,352 14,677 rose by €1,110 million compared with the previous year, primarily BASF enjoys good credit ratings, especially compared with com- from higher provisions for bonus payments and for rebates. Other petitors in the chemical industry. Standard & Poor’s most recently liabilities increased by €239 million. confirmed its rating for BASF of A/A-1/outlook stable on January 6, Off-balance sheet obligations 2022. Moody’s most recently confirmed BASF’s A3/P-2/outlook Current financial indebtedness was on a level with the prior year- stable rating on January 5, 2022. Fitch’s rating of A/F1/outlook end. This was attributable to the above-mentioned reclassification of Off-balance sheet obligations mainly relate to long-term purchase stable from June 11, 2021, also remained unchanged. three bonds and a loan in the aggregate amount of around €2.2 bil- obligations for raw materials. We also concluded long-term supply lion from noncurrent to current financial indebtedness. The reduction agreements for green power in 2021. In addition, obligations exist in We have solid financing. Corporate bonds form the basis of our in commercial paper at BASF SE (around €1 billion) and the sched- connection with initiated or planned investment projects. medium to long-term debt financing. These are issued in euros and uled repayment of a eurobond (€1 billion) and a loan (€150 million) For more information, see Note 25 to the Consolidated Financial Statements on page 263 and the other currencies with different maturities as part of our €20 billion had an offsetting effect. forecast from page 145 onward debt issuance program. The goal is to create a balanced maturity profile, diversify our financing and optimize our debt capital financing Tax liabilities rose by €173 million compared with the previous year. conditions. Financing policy and credit ratings Liabilities of disposal groups amounted to €61 million. For short-term financing, we use BASF SE’s global commercial Our financing policy aims to ensure our solvency at all times, limiting paper program, which has an issuing volume of up to $12.5 billion. Net debt declined by €325 million compared with December 31, the risks associated with financing and optimizing our cost of capi- As of December 31, 2021, commercial paper with a carrying amount 2020, to €14,352 million. tal. We preferably meet our external financing needs on the interna- of €248 million was outstanding under this program. A firmly com- For more information on the composition and development of individual asset items, see the Notes to tional capital markets. mitted, syndicated credit line of €6 billion with a term until 2026 the Consolidated Financial Statements from page 200 onward covers the repayment of outstanding commercial paper. It can also For more information on the development of the balance sheet, see the Ten-Year Summary We strive to maintain a solid A rating, which ensures unrestricted be used for general company purposes. The credit line, as well as a on page 288 access to financial and capital markets. Our financing measures are short-term credit line of €3 billion that expired in the second quarter aligned with our operational business planning as well as the com- of 2021, were not used at any point in 2021. Our external financing pany’s strategic direction and also ensure the financial flexibility to is therefore largely independent of short-term fluctuations in the take advantage of strategic options. credit markets.
BASF Report 2021 Management’s Report – Financial Position 65 Financing instruments Statement of cash flows for property, plant and equipment and intangible assets also con- Million € tributed to the decrease in cash flows from investing activities. 248 Cash flows from operating activities amounted to €7,245 million, Commercial paper compared with €5,413 million in the previous year. The considerable Cash flows from financing activities amounted to –€6,457 million. increase was primarily due to the improvement in net income, which In addition to the payment of dividends in the amount of €3,312 mil- 3,447 had included high impairments in the previous year. Accordingly, lion (2020: €3,139 million), financial and similar liabilities were 13,489 depreciation and amortization of property, plant and equipment and reduced by €3,145 million. Liabilities to banks €17,184 million Bonds and other liabilities to the capital market intangible assets was significantly below the prior-year figure in 2021, at €3,687 million. An offsetting factor was cash tied up in net Free cash flow, which remains after deducting payments made for working capital, which rose by €1,166 million to €1,566 million in property, plant and equipment and intangible assets from cash 2021. This mainly resulted from the significant increase in inventories flows from operating activities, represents the financial resources by €3,304 million due to higher business volumes and prices after a remaining after investments. It amounted to €3,713 million in 2021, BASF Group’s most important financial contracts contain no side reduction in inventories had supported operating cash flows in the after €2,284 million in the previous year. agreements with regard to specific financial ratios (financial cove- previous year. nants) or compliance with a specific rating (rating trigger). Cash of €1,272 million was tied up in receivables, €904 million less To minimize risks and leverage internal optimization potential within than in the prior year. The improvement was due in particular to the the Group, we bundle the financing, financial investments and reduction in precious metal trading exposures. Trade accounts foreign currency hedging of BASF SE’s subsidiaries within the receivable rose by €1,799 million, €805 million more than in the BASF Group where possible. Foreign currency risks are primarily previous year. By contrast, the €3,010 million rise in liabilities hedged centrally using derivative financial instruments in the market. increased operating cash flows. This was largely attributable to the increase in trade accounts payable and current provisions. This Our interest risk management generally pursues the goal of reducing effect was less pronounced in the previous year at €927 million. interest expenses for the BASF Group and limiting interest risks. Interest rate hedging transactions are therefore conducted with Miscellaneous items led to cash tied up of €398 million in 2021, after banks in order to turn selected liabilities to the capital market from cash released of €122 million in the previous year. This was due in fixed to variable interest rates or vice versa. particular to the elimination of equity-accounted income and the For more information on the financing tools and hedging instruments used, see Note 21 from reclassification of income from divestitures, including the gain on the page 251 onward and Note 26 from page 263 onward in the Notes to the Consolidated Financial disposal of the shareholding in Solenis, to cash flows from investing Statements activities. Cash flows from investing activities totaled –€2,622 million in 2021, after –€1,904 million in the previous year. Payments received for divestitures and the disposal of the shareholding in Solenis in 2021 were below the figure from the disposal of the construction chemicals business in the previous year. By contrast, payments made for acquisitions amounted to €600 million in 2021, around half the prior-year figure. The €403 million increase in payments made
BASF Report 2021 Management’s Report – Financial Position 66 Statement of cash flows Free cash flow Million € Million € 2021 2020 2021 2020 Net income 5,523 –1,060 Cash flows from operating activities 7,245 5,413 Depreciation and amortization of property, plant and equipment and intangible assets 3,687 6,751 – Payments made for property, plant 3,532 3,129 and equipment and intangible assets Changes in net working capital –1,566 –400 Free cash flow 3,713 2,284 Miscellaneous items –398 122 Cash flows from operating activities 7,245 5,413 Cash flow Payments made for property, plant and equipment and intangible assets –3,532 –3,129 Billion € Acquisitions/divestitures 430 1,280 10 Changes in financial assets and miscellaneous items 480 –55 8 Cash flows from investing activities –2,622 –1,904 6 4 Capital increases/repayments and other equity transactions − 3 2 0 Changes in financial and similar liabilities –3,145 1,580 2017 2018 2019 2020 2021 Dividends –3,312 –3,139 Cash flows from operating activities Payments made for property, plant and equipment and intangible assets Cash flows from financing activities –6,457 –1,556 Free cash flow Cash-effective changes in cash and cash equivalents –1,834 1,953 Cash and cash equivalents at the beginning of the period and other changesa 4,458 2,382 Cash and cash equivalents at the end of the yeara 2,624 4,335 a In 2021 and 2020, cash and cash equivalents presented in the statement of cash flows deviate from the figures in the balance sheet. For explanations and other disclosures on the statement of cash flows, see Note 27 to the Consolidated Financial Statements from page 277 onward.
BASF Report 2021 Management’s Report – Actual Development Compared With Outlook for 2021 67 Actual Development Compared With Outlook for 2021 Sales, earnings and ROCE forecast for the BASF Group Forecast/actual comparison We increased sales to €78.6 billion in 2021, considerably above our Sales EBIT before special items ROCE forecast at the beginning of the year of sales growth to between 2021 forecast 2021 actual 2021 forecast 2021 actual 2021 forecast 2021 actual €61 billion and €64 billion. Sales in the Surface Technologies, Chemicals Chemi cals, Industrial Solutions, Agricultural Solutions and Nutri- Materials tion & Care segments rose more strongly than initially expected. This was driven primarily by significantly higher prices, especially in the Industrial Solutions Surface Technologies and Chemicals segments. We increased sales Surface Technologies volumes as expected. Currency and portfolio effects had an off- setting impact, in line with our assumptions. Nutrition & Care Agricultural Solutions At €7.8 billion, EBIT before special items likewise significantly Other – – exceeded the forecast range of between €4.1 billion and €5.0 billion. The Industrial Solutions, Nutrition & Care and Agricultural Solutions BASF Group €61 billion– €78.6 billion €4.1 billion– €7.8 billion 8.0%–9.2%a 13.5% €64 billiona €5.0 billiona segments in particular did not develop as expected. Industrial Solu- tions increased EBIT before special items considerably, contrary to At prior-year level: no change (+/–0.0%) | Slight increase/decrease: “slight” represents a change of 0.1%–5.0% for sales; 0.1%–10.0% for earnings; 0.1 to 1.0 percentage points for ROCE the forecast of a slight decline. EBIT before special items in the | Considerable increase/decrease: “considerable” represents a change of 5.1% or higher for sales; 10.1% or higher for earnings; more than 1.0 percentage points for ROCE Agricultural Solutions and Nutrition & Care segments declined con- a We updated our outlook in April, July and October 2021. We most recently updated it in October 2021, f orecasting sales of between €76 billion and €78 billion, EBIT before special items of between €7.5 billion and €8.0 billion, and a ROCE of between 13.2% and 14.1%. siderably; in both segments, we had expected a slight improvement in earnings. We considerably increased ROCE in almost all segments. ROCE Accelerator sales and CO emissions forecast for the CO emissions amounted to 20.2 million metric tons, slightly below 2 2 increased only slightly in the Agricultural Solutions segment, while BASF Group the range we forecast in February of between 20.5 million metric the Nutrition & Care segment saw a considerable decline. Overall, tons and 21.5 million metric tons. BASF significantly increased pro- the degree of improvement exceeded our expectations: ROCE for We increased Accelerator sales to €24.1 billion in 2021, consider- duction volumes in 2021 in response to stronger demand. To reduce the BASF Group amounted to 13.5%, considerably above the range ably above the range forecast in February of between €18 billion and the additional emissions resulting from this, we made procuring we had forecast of between 8.0% and 9.2%. €19 billion. The range forecast in October – between €21.5 billion energy from renewable sources a focus. To this end, BASF converted and €22.5 billion – was likewise exceeded. This was due to the energy supply agreements, acquired renewable energy certificates We revised the outlook provided in February 2021 in April, July and BASF Group’s extremely positive business performance, which and signed long-term supply agreements for green power. A project October 2021. In October 2021, we projected sales of between was also reflected in Accelerator sales. The decline caused by the to reduce nitrous oxide emissions in Ludwigshafen, Germany, was €76 billion and €78 billion. We expected EBIT before special items divestiture of the global pigments business and the resulting outflow successfully implemented. Divestitures such as the disposal of the of €7.5 billion to €8.0 billion. For ROCE, we forecast a range of of Accelerator products only had a slight offsetting effect overall. global pigments business led to a slight decline in emissions. In 13.2% to 14.1%. addition, emissions were significantly reduced by the lower capacity utilization of the ammonia plant due to the sharp rise in natural gas prices.