Quarterly Report • Aug 2, 2007
Quarterly Report
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BASF Posts Very Strong First-Half Results in 2007 Interim Financial Statements
January – June 2007 Published on August 1, 2007
| 2nd Quarter | 1st Half | |||||
|---|---|---|---|---|---|---|
| Million € | 2007 | 2006 | Change in % |
2007 | 2006 | Change in % |
| Sales | 14,656 | 12,322 | 18.9 | 29,288 | 24,837 | 17.9 |
| Income from operations before depreciation and amortization (EBITDA) | 2,663 | 2,374 | 12.2 | 5,336 | 4,775 | 11.7 |
| Income from operations (EBIT) before special items | 2,030 | 1,910 | 6.3 | 4,146 | 3,775 | 9.8 |
| Income from operations (EBIT) | 2,007 | 1,797 | 11.7 | 4,017 | 3,646 | 10.2 |
| Financial result | (65) | 23 | (159) | 44 | ||
| Income before taxes and minority interests | 1,942 | 1,820 | 6.7 | 3,858 | 3,690 | 4.6 |
| Net income | 1,024 | 920 | 11.3 | 2,059 | 1,870 | 10.1 |
| Earnings per shares (€) | 2.08 | 1.82 | 14.3 | 4.16 | 3.69 | 12.7 |
| EBIT before special items in percent of sales | 13.9 | 15.5 | – | 14.2 | 15.2 | – |
| Cash provided by operating activities | 2,042 | 760 | 168.7 | 2,743 | 2,208 | 24.2 |
| Additions to long-term assets1 | 597 | 4,784 | (87.5) | 1,036 | 5,384 | (80.8) |
| Excluding acquisitions | 597 | 538 | 11.0 | 1,036 | 1,021 | 1.5 |
| Amortization and depreciation2 | 656 | 577 | 13.7 | 1,319 | 1,129 | 16.8 |
| Segment assets (end of period)3 | 38,452 | 35,241 | 9.1 | – | – | – |
| Personnel costs | 1,677 | 1,430 | 17.3 | 3,272 | 2,822 | 15.9 |
| Number of employees (end of period) | 94,708 | 86,794 | 9.1 | – | – | – |
1 Property, plant and equipment and intangible assets; previous year's values adjusted following purchase price allocation for Engelhard Corp.
2 Property, plant and equipment and intangible assets
3 Property, plant and equipment, intangible assets, inventories and business-related receivables
€29.3bn +18%
EBIT before Special items
€4.1bn
changes compared with 1st half 2006
Self-cleaning effect for textiles: The innovative finishing material Mincor® TX TT provides technical textiles for awnings, sunshades, sails and tents with a self-cleaning effect based on nanostructured surfaces.
Nature's lotus effect shows that it is not the smoothest possible surfaces that are most effective at repelling dirt and water, but those with structures in the nanometer range. The principle sounds simple, but its practical implementation on textiles posed a challenge to BASF's nanotechnologists. The solution they came up with is a composite material in which nanoparticles are firmly embedded in a carrier matrix.
Tiny nubs on the surface of the leaves of the lotus plant keep water droplets and dirt at bay. On textiles finished with Mincor TX TT, innumerable embedded particles measuring less than 100 nanometers have the same function. Because of the minimal contact that is confined to the outmost tips of the particles, the adhesive forces that would otherwise cause a droplet to spread are very weak. Surface tension causes the droplet to form a spherical globule, and the water simply rolls off. Specks of dirt, which, because of the embedded particles, also have hardly any contact with the treated textile, are carried along by the water droplets and washed away.
Last year, polyester awning fabrics finished with Mincor TX TT successfully made the transition from the laboratory to practical application. Treated fabrics for sunshades and sails are now also undergoing trials. This type of finishing is an ideal solution for fabrics that are continuously exposed to the elements. The next shower or a quick spray from the garden hose simply washes off the dirt.
Polyester fabrics finished with Mincor TX TT are the first products to meet the stringent standards for self-cleaning textiles established by the Denkendorf Institute of Textile and Process Engineering (ITV). They have therefore received the ITV quality seal "Selfcleaning inspired by nature."
The next generation of lighting: Organic light-emitting diodes open up new design possibilities for lighting systems and consume considerably less energy than conventional alternatives.
Color emitters for the production of OLEDs are purified in special glass tubes. The temperature declines continuously from one end of the tube to the other. The individual components of the organic mixture condense from the gas phase at different points in the tube. Further processing steps follow this separation.
Organic light-emitting diodes (OLEDs) are luminescent components composed of organic semiconducting materials. Once assembled, OLEDs are as thin as a film of plastic and are thus suitable for making flexible lighting elements – a real revolution in the lighting industry. For example, they can be used in the form of transparent lighting tiles, wall covering and even curtains. Such systems are expected to consume less than half as much electricity as conventional energy-saving bulbs and should also last longer.
BASF has extensive know-how in the area of dyes and in synthesizing and manufacturing complex organic compounds. Our Research Verbund also offers a broad spectrum of analytical techniques. In the area of OLEDs, we have strengthened our patent position with regard to dark blue phosphorescent emitters.
Together with partners from industry, universities and research institutes, experts from BASF conduct research into new materials for OLED applications for the lighting segment at the Joint Innovation Lab (JIL) at our site in Ludwigshafen. BASF Future Business GmbH, a subsidiary of BASF, manages the development of these organic semiconductors, which consist of thin layers measuring 5 to 150 nanometers. With our technology partners Osram and Philips, we aim to present initial lighting prototypes by the end of 2009.
19 Overview of Other Topics
20 Outlook
Front cover: Overview 2nd Quarter and 1st Half 2007 | News from Our Innovation Centers Back cover: Important Dates | Contacts
Cover photo: Lourival Batista Filho (left) and Cleiton Luiz dos Santos, production employees, at the BASF S. A. coatings plant in São Bernardo do Campo, Brazil.
1st Half 2007 changes compared with 1st half 2006
Earnings per share
€4.16
€2.7bn +24%
Compared with the second quarter of 2006, sales rose by 19% to approximately €14.7 billion. All segments posted higher sales with the exception of Oil & Gas. In addition to the acquired businesses, this was due above all to higher sales volumes. Sales prices were increased, in particular in the Chemicals and Plastics segments. Disregarding currency effects, primarily due to the depreciation of the U.S. dollar, sales increased by 22%.
| % of sales | 2nd Quarter |
|---|---|
| Volumes | 7 |
| Prices | 2 |
| Acquisitions/divestitures | 13 |
| Currencies | (3) |
| 19 |
The Chemicals segment posted the strongest sales growth, in particular due to the catalysts and Materials Services business acquired last year. All divisions achieved higher sales volumes and prices.
In the Plastics segment too, all divisions contributed to the rise in sales. Sales prices and volumes increased especially in the Styrenics division.
The strong sales growth in the Performance Products segment was due mainly to acquisitions in 2006. The Construction Chemicals division grew strongly, in particular in Europe.
Both divisions in the Agricultural Products & Nutrition segment recorded higher sales. The Agricultural Products division benefited especially from strong demand for fungicides in Europe and for insecticides in South America. In the Fine Chemicals division, higher sales from the acquired personal care business more than offset the decline in the lysine and premix businesses.
In the Oil & Gas segment, sales were lower than in the very strong second quarter of 2006 due to the lower oil price and the weaker dollar.
| Million € | |||
|---|---|---|---|
| Chemicals | 2007 | 3,660 | +50% |
| 2006 | 2,443 | ||
| Plastics | 2007 | 3,480 | +10% |
| 2006 | 3,168 | ||
| Performance | 2007 | 3,010 | +37% |
| Products | 2006 | 2,197 | |
| Agricultural Products | 2007 | 1,429 | +3% |
| & Nutrition | 2006 | 1,389 | |
| Oil & Gas | 2007 | 2,269 | (9)% |
| 2006 | 2,481 |
Compared with the second quarter of 2006, we increased income from operations (EBIT) before special items by approximately 6% to €2,030 million. All segments posted significantly higher earnings with the exception of Oil & Gas.
Earnings growth was strongest in the Chemicals segment. All divisions, in particular Petrochemicals, contributed to this.
Second-quarter earnings also increased in the Plastics segment. Earnings were especially improved in the Styrenics division.
In the Performance Products segment, earnings rose considerably due to the contribution from the acquired businesses, above all Construction Chemicals. The earnings growth was achieved despite a decline in the Functional Polymers division.
Both divisions in the Agricultural Products & Nutrition segment posted significantly higher EBIT before special items, among other things due to cost reductions. In the Agricultural Products division, earnings also grew thanks to the expansion of the business. In the Fine Chemicals division, restructuring measures proved successful.
In the Oil & Gas segment, earnings declined compared with the very strong second quarter of 2006 due to the lower oil price, the weak dollar and a decline in margins in the gas trading business.
Earnings of "Other" declined by €150 million to €(166) million, in particular due to BASF's stock option program (BOP). These charges, which were due to the rise in BASF's share price, will be assigned to the segments in the second half of the year. Higher research and development expenses in our growth clusters also reduced the earnings of "Other." Foreign currency results that are not allocated to the segments declined and were negative in the second quarter.
Compared with the second quarter of 2006, EBIT climbed 12% to €2,007 million. Special items in income from operations were related to integration costs for the acquisitions made in 2006.
The financial result declined by €88 million to €(65) million. Interest expenses rose in connection with the acquisitions made in mid-2006. The previous year's second quarter contained gains from the sale of securities.
Income before taxes and minority interests rose by 7% to €1,942 million.
The tax rate declined from 48% to 45% as a result of the lower contribution to the BASF Group's earnings from the Oil & Gas segment. In the second quarter, foreign taxes for oil production that are noncompensable with German corporate income tax amounted to €331 million compared with €383 million in the same period of 2006.
Net income rose by 11% to €1,024 million. Earnings per share were €2.08 compared with €1.82 in the second quarter of 2006.
| 1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | Full Year | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Million € | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 |
| – Income from operations | (106) | (16) | (23) | (113) | (177) | (201) | (507) | |||
| – Financial result | – | – | – | – | – | – | – | |||
| (106) | (16) | (23) | (113) | (177) | (201) | (507) |
Compared with the first half of 2006, first-half sales rose by 18% to €29.3 billion. All segments contributed to the sales growth with the exception of the Oil & Gas segment. The increase in sales was due in particular to the acquisitions made toward the middle of 2006, as well as higher volumes and sales prices in the chemical businesses. Disregarding currency effects, primarily due to the depreciation of the U.S. dollar, sales increased by 21%.
| % of sales | 1st Half |
|---|---|
| Volumes | 4 |
| Prices | 3 |
| Acquisitions/divestitures | 14 |
| Currencies | (3) |
| 18 |
Sales growth was highest in the Chemicals segment at more than 50%. This was due to the acquisition of the catalysts business in June 2006. Sales also rose in the other divisions, especially in Petrochemicals.
All divisions in the Plastics segment posted higher sales. In particular, the Styrenics division achieved significantly higher sales prices and volumes.
In the Performance Products segment, sales increased in all divisions. The strong sales growth was due in particular to the acquired businesses in Performance Chemicals and to the Construction Chemicals division.
In the Agricultural Products & Nutrition segment, sales in the Agricultural Products division were at the same level as in the first half of 2006. In this division, stronger demand offset negative currency effects and the sales decline due to the divestitures in 2006. Higher volumes despite the discontinuation of the lysine business together with the contribution from the personal care business acquired from Engelhard led to sales growth in the Fine Chemicals division.
Compared with the first half of 2006, sales in the Oil & Gas segment declined due to lower volumes and a decrease in oil prices.
| Million € | |||
|---|---|---|---|
| Chemicals | 2007 | 7,149 | +53% |
| 2006 | 4,682 | ||
| Plastics | 2007 | 6,828 | +9% |
| 2006 | 6,259 | ||
| Performance | 2007 | 5,836 | +34% |
| Products | 2006 | 4,344 | |
| Agricultural Products | 2007 | 2,804 | +1% |
| & Nutrition | 2006 | 2,765 | |
| Oil & Gas | 2007 | 5,239 | (4)% |
| 2006 | 5,466 |
Compared with the first half of 2006, we increased income from operations (EBIT) before special items by 10% to €4,146 million.
Earnings in the Chemicals segment rose by more than 80%. This was due in particular to improved margins in the Petrochemicals division and the new Catalysts operating division.
In the Plastics segment, earnings were higher than in the first half of 2006. This was due especially to improved earnings in the Styrenics division.
The rise in earnings in the Performance Products segment was primarly due to the contribution from the new Construction Chemicals division; persistent pressure on margins for acrylic monomers in the Functional Polymers division had a negative impact on earnings.
In the Agricultural Products & Nutrition segment, EBIT before special items rose significantly in both divisions. This was mainly the result of successful measures to reduce costs.
Earnings declined in the Oil & Gas segment, but remained at a high level. The contribution from the exploration and production business decreased, primarily due to lower prices, while the contribution from natural gas trading rose thanks to a very strong first quarter.
Earnings of "Other" declined by €214 million to €(334) million, in particular due to charges associated with BASF's stock option program (BOP). Higher research and development expenses in the growth clusters also reduced earnings. Foreign currency results that are not allocated to the segments declined and were negative in the first half.
Compared with the first half of 2006, EBIT rose 10% to €4,017 million. Special items in income from operations were related to integration costs for the acquisitions made in 2006 as well as costs for restructuring measures.
The financial result declined by €203 million to €(159) million. Interest expenses rose in connection with the acquisitions made in mid-2006. The first and second quarters of 2006 contained gains from the sale of securities.
Income before taxes and minority interests rose by 5% to €3,858 million.
The tax rate declined from 47% to 43% as a result of the acquisitions and the lower contribution to the BASF Group's earnings from the Oil & Gas segment. In the first half, foreign taxes for oil production that are noncompensable with German corporate income tax amounted to €589 million compared with €655 million in the same period of 2006.
Net income rose by 10% to €2,059 million. Earnings per share were €4.16 compared with €3.69 in the first half of 2006.
| Chemicals | 2007 | 1,230 | +84% |
|---|---|---|---|
| 2006 | 668 | ||
| Plastics | 2007 | 687 | +6% |
| 2006 | 647 | ||
| Performance | 2007 | 489 | +7% |
| Products | 2006 | 457 | |
| Agricultural Products | 2007 | 521 | +28% |
| & Nutrition | 2006 | 407 | |
| Oil & Gas | 2007 | 1,553 | (9)% |
| 2006 | 1,716 |
| 1st Half | 2nd Half | Full Year | ||||
|---|---|---|---|---|---|---|
| Million € | 2007 | 2006 | 2007 | 2006 | 2007 | 2006 |
| – Income from operations | (129) | (129) | (378) | (507) | ||
| – Financial result | – | – | – | – | ||
| (129) | (129) | (378) | (507) |
| Overview BASF shares | 2nd Quarter | 1st Half | |
|---|---|---|---|
| 2007 | 2007 | ||
| Performance (with dividends reinvested) | |||
| BASF | % | 19.3 | 36.2 |
| DAX 30 | % | 15.8 | 21.4 |
| DJ EURO STOXX 50 | % | 9.5 | 11.3 |
| DJ Chemicals | % | 11.3 | 19.1 |
| MSCI World Chemicals | % | 10.5 | 17.4 |
| Average | € | 89.67 | 82.77 |
|---|---|---|---|
| High | € | 97.24 | 97.24 |
| Low | € | 84.17 | 71.95 |
| Close (end of period) | € | 97.24 | 97.24 |
| Average daily trade | Million | 3.4 | 3.6 |
| Market capitalization (end of period) | Billion € | 48.7 | 48.7 |
BASF shares increased in value by 36% in the first half of 2007. As a result, our shares performed significantly better than the German and European stock markets, whose key DAX 30 and DJ EURO STOXX 50 indices rose by approximately 21% and 11%, respectively, in the same period. In the first half, BASF shares also outperformed the global industry indices DJ Chemicals and MSCI World Chemicals, which increased by 19% and 17%, respectively.
In May, BASF was again included in the FTSE4Good Index. The index, which is published annually by the Financial Times and the London Stock Exchange, focuses on companies with good records with regard to commitment to environmental protection, promotion of dialogue with stakeholders, and compliance with safety, environmental and social standards.
In the second quarter of 2007, we bought back shares for €372 million under the €3 billion buyback program scheduled to run until the end of 2008. As a result, BASF repurchased 9.2 million shares for a total of €753 million or an average price of €81.86 per share in the first six months of the year. Together with an additional 1.4 million shares that were repurchased in 2006, these shares were cancelled in July 2007. The total number of shares thus declined to 490,485,000. The goal of the share buyback program is to increase earnings per share and further optimize our balance sheet structure.
In May, BASF was presented with the German Investor Relations Award 2007 in the category of DAX companies. In June, BASF took first place among EURO STOXX 50 companies in the Capital Investor Relations Prize 2007. > Up-to-date information on BASF shares is available on the Internet at corporate.basf.com/share.
the interested party. BASF's activities under consideration include its styrene monomer (SM), polystyrene (PS), styrene butadiene copolymer (SBC) and acrylonitrile butadiene styrene (ABS) businesses with plants in Antwerp, Belgium; Altamira, Mexico; São José dos Campos, Brazil; Ulsan, South Korea; and Dahej, India. These activities posted sales of about €3.2 billion in 2006 and have approximately 1,000 employees.
BASF Aktiengesellschaft has decided to file for voluntary delisting of its ADSs (American Depositary Shares) from the New York Stock Exchange (NYSE) and deregistration and termination of its reporting obligations under the Securities and Exchange Act of 1934. The decision by the Board of Executive Directors was announced on July 30. —
The global economy in mid-2007 remains robust despite further increases in raw material prices, in particular oil prices. Interest rates have also risen, but are still at a relatively low level. We expect the economic growth to continue in the second half of the year.
In the first half of 2007, the global gross domestic product grew slightly slower at approximately 3.5% (2006: 4.0%). Global industrial production growth also slowed slightly to about 4% compared with 5.3% in 2006.
This was mainly due to slower growth in the industrialized countries, in particular in the United States, but was largely offset by strong production growth in developing and transition countries, especially in China. Demand for industrial goods remains high in Asia and Europe.
| 2007 | 2006 | Change in % |
|---|---|---|
| 3,660 | 2,443 | 50 |
| 301 | 285 | 6 |
| 1,226 | 259 | 373 |
| 1,524 | 1,324 | 15 |
| 609 | 575 | 6 |
| 4,873 | 3,499 | 39 |
| 754 | 409 | 84 |
| 602 | 351 | 72 |
| 16.4 | 14.4 | – |
| 593 | 263 | 125 |
| 10,632 | 10,903 | (2) |
| 49 | 35 | 40 |
| 181 | 3,011 | (94) |
Sales in the Chemicals segment climbed 50% (volumes 12%, prices 8%, portfolio 34%, currencies –4%). In addition to higher sales volumes and prices, this was due in particular to the acquired catalysts business. Earnings increased significantly.
Strong demand, especially in Europe and Asia, resulted in higher volumes and sales, in particular for inorganic specialties, glues and impregnating resins, as well as basic inorganic chemicals. Earnings increased significantly thanks to higher volumes and improved margins.
Sales amounted to over €1.2 billion due to stable demand and high prices for precious metals. We achieved higher sales of emission-control catalysts in Asia and Europe. Sales of process catalysts were negatively impacted by weaker demand for polyolefin catalysts. The business with oil refinery catalysts and adsorbents developed positively. Before and after special items, the division contributed significantly to earnings.
Higher prices and volumes led to significantly higher sales. Cracker products benefited from strong demand and higher margins in Europe. In almost all regions, demand for solvents and plasticizers was robust and margins increased. Overall, the division's earnings rose significantly.
Starting in the third quarter, the crackers in Port Arthur, Texas, and Antwerp, Belgium, will be shut down temporarily for scheduled maintenance and to expand capacity in Antwerp.
The division posted higher sales in almost all product lines thanks to strong growth in demand, in particular in Asia. Earnings rose significantly as a result of improved margins and restructuring measures.
Sales
Q2 2007 compared with Q2 2006
EBIT before special items
Q2 2007 compared with Q2 2006
+ 50% + 72%
| Million € | 2007 | 2006 | Change in % |
|---|---|---|---|
| Sales | 7,149 | 4,682 | 53 |
| Thereof Inorganics | 593 | 570 | 4 |
| Catalysts | 2,426 | 280 | |
| Petrochemicals | 2,908 | 2,698 | 8 |
| Intermediates | 1,222 | 1,134 | 8 |
| Sales including intersegmental transfers | 9,609 | 6,788 | 42 |
| EBITDA | 1,540 | 861 | 79 |
| EBIT before special items | 1,230 | 668 | 84 |
| EBIT before special items in percent of sales | 17.2 | 14.3 | – |
| EBIT | 1,211 | 580 | 109 |
| Assets | 10,632 | 10,903 | (2) |
| Research and development expenses | 95 | 66 | 44 |
| Additions to property, plant and equipment and intangible assets | 311 | 3,173 | (90) |
In the first half of 2007, sales rose by more than 50% (volumes 9%, prices 5%, portfolio 43%, currencies –4%). This was due above all to the acquired catalysts business in addition to higher sales volumes and prices. Earnings increased significantly, in particular thanks to the contribution from the Petrochemicals division.
Volumes and sales rose, in particular for inorganic specialties as well as glues and impregnating resins. In Asia especially, sales of electronic chemicals were negatively impacted by the appreciation of the euro. Overall, earnings increased considerably thanks to higher margins.
In the first half, sales amounted to more than €2.4 billion as a result of stable demand and high prices for precious metals. Sales of emission-control catalysts grew in Europe and Asia. In the process catalysts business, demand was weaker for polyolefin catalysts, but stronger for refinery catalysts. Even after special items, the division contributed to the significant rise in the segment's earnings.
Higher prices and volumes led to an increase in sales. Demand was strong both for cracker products as well as for solvents and plasticizers. Earnings rose significantly thanks to higher margins. In the second half, earnings will be negatively impacted by the scheduled turnarounds of the crackers in Port Arthur, Texas, and Antwerp, Belgium.
In the first half of 2007, sales increased worldwide in almost all product lines compared with the same period of 2006. Strong demand made it possible to increase prices and improve margins for a number of products. Earnings rose significantly. Lower fixed costs as a result of restructuring measures contributed significantly to the increase in earnings.
Sales
1st Half 2007 compared with 1st half 2006
EBIT before special items
1st Half 2007 compared with 1st half 2006
+ 53% + 84%
| Million € | 2007 | 2006 | Change in % |
|---|---|---|---|
| Sales | 3,480 | 3,168 | 10 |
| Thereof Styrenics | 1,418 | 1,232 | 15 |
| Performance Polymers | 778 | 738 | 5 |
| Polyurethanes | 1,284 | 1,198 | 7 |
| Sales including intersegmental transfers | 3,638 | 3,294 | 10 |
| EBITDA | 491 | 442 | 11 |
| EBIT before special items | 362 | 315 | 15 |
| EBIT before special items in percent of sales | 10.4 | 9.9 | – |
| EBIT | 361 | 314 | 15 |
| Assets | 6,974 | 6,867 | 2 |
| Research and development expenses | 35 | 32 | 9 |
| Additions to property, plant and equipment and intangible assets | 128 | 116 | 10 |
Second-quarter sales in the Plastics segment were higher than in the same period of 2006 thanks to higher volumes and prices (volumes 8%, prices 6%, currencies –4%). Earnings increased compared with the second quarter of the previous year. This was due to significantly improved earnings in the Styrenics division.
Higher volumes and prices resulted in double-digit sales growth. In Europe, demand for foams was strong, especially for thermal insulation applications. Second-quarter sales were also higher compared with the same period of 2006 in Asia and South America. Earnings were significantly higher compared with the weak second quarter of 2006, in particular due to the positive business development in Europe.
Sales increased compared with the same period of 2006. This was due in particular to higher volumes in Europe and Asia. In addition, prices were increased in some
product lines. Earnings were at the same level as in the second quarter of 2006 as a result of currency effects and high raw material costs.
On May 18, BASF inaugurated a world-scale compounding plant for engineering plastics in Shanghai, China. This plant will enable us to strengthen our position as a leading supplier of engineering plastics in the Asian growth markets.
Sales rose in the second quarter, in particular due to higher sales volumes in Europe and Asia. Earnings were at the excellent level of the previous year's second quarter, although high raw material costs and reduced plant availability negatively impacted earnings.
On June 13, BASF opened its new site for polyurethane specialties in Shanghai, China. It comprises a polyurethane system house, a Technical Research & Development Center and a production plant for thermoplastic polyurethanes (TPU).
Sales
Q2 2007 compared with Q2 2006
EBIT before special items
Q2 2007 compared with Q2 2006
+ 10% + 15%
| Million € | 2007 | 2006 | Change in % |
|---|---|---|---|
| Sales | 6,828 | 6,259 | 9 |
| Thereof Styrenics | 2,757 | 2,383 | 16 |
| Performance Polymers | 1,563 | 1,488 | 5 |
| Polyurethanes | 2,508 | 2,388 | 5 |
| Sales including intersegmental transfers | 7,127 | 6,506 | 10 |
| EBITDA | 943 | 898 | 5 |
| EBIT before special items | 687 | 647 | 6 |
| EBIT before special items in percent of sales | 10.1 | 10.3 | – |
| EBIT | 686 | 645 | 6 |
| Assets | 6,974 | 6,867 | 2 |
| Research and development expenses | 71 | 73 | (3) |
| Additions to property, plant and equipment and intangible assets | 220 | 334 | (34) |
In the first half of 2007, sales in the Plastics segment increased compared with the same period of the previous year due to higher volumes and prices (volumes 6%, prices 7%, currencies –4%). Earnings also increased thanks to significantly higher earnings in the Styrenics division.
Higher volumes and prices resulted in double-digit sales growth. The strongest increase was posted in Europe. Sales in Asia and South America were also higher than in the first half of 2006. The division's earnings increased significantly compared with the previous year's weak first half, with a major contribution being provided by the foams business.
BASF is currently reviewing strategic options for parts of its styrenics business and has received an initial purchase offer.
Sales in the first half of 2007 rose thanks to higher sales volumes and prices. Earnings increased compared with the same period of 2006 despite significantly higher raw material costs.
In order to optimize raw material supplies for the engineering plastic polyamide 6,6, we will obtain adipodinitrile (ADN) from INVISTA starting at the beginning of 2009. We plan to close the ADN plant at our site in Seal Sands, United Kingdom, in due course.
Sales increased compared with the first half of 2006 despite unscheduled plant shutdowns, in particular for TDI (toluene diisocyanate) in North America. The excellent earnings level posted in the first half of the previous year was not achieved as a result of these shutdowns and due to significantly higher raw material costs.
The capacity of the MDI (diphenylmethane diisocyanate) plant in Antwerp, Belgium, was expanded from 450,000 to 560,000 metric tons per year.
BASF is considering the construction of a new MDI plant in Chongqing municipality, Western China. The startup is planned from 2010 onward, and the plant is expected to have a capacity of 400,000 metric tons per year of crude MDI.
Sales
1st Half 2007 compared with 1st half 2006
+ 9% + 6%
EBIT before special items
1st Half 2007 compared with 1st half 2006
| 2007 | 2006 | Change in % |
|---|---|---|
| 3,010 | 2,197 | 37 |
| 558 | – | – |
| 656 | 576 | 14 |
| 901 | 848 | 6 |
| 895 | 773 | 16 |
| 3,111 | 2,295 | 36 |
| 377 | 298 | 27 |
| 260 | 209 | 24 |
| 8.6 | 9.5 | – |
| 251 | 209 | 20 |
| 10,001 | 5,884 | 70 |
| 78 | 59 | 32 |
| 118 | 1,002 | (88) |
The businesses acquired in June and July 2006 resulted in significant sales growth (volumes 3%, prices 1%, portfolio 35%, currencies –2%). Higher volumes and prices were offset to some extent by negative currency effects. Second-quarter earnings were higher than in the same period of 2006 as a result of the acquisitions.
Second quarter sales were high at €558 million. We achieved strong growth rates, in particular in Europe. In North America, there were signs of an upturn in business following a weaker first quarter due to unfavorable weather conditions. The division contributed significantly to earnings, even after integration costs. The operational integration of the business is largely complete.
Volumes and sales rose. The activities of the RELIUS group resulted in expansion of the industrial coatings and architectural coatings businesses in Europe. In addition, we posted higher sales of automotive (OEM) coatings in Europe and China as well as architectural coatings in
South America. In North America, business was weaker due to a decline in automobile production. Earnings were higher than in the second quarter of 2006.
Sales increased compared with the previous year's second quarter thanks to the contribution from the kaolin pigment business acquired as part of Engelhard. High raw material costs and fierce competition, especially in Asia, put persistent pressure on margins for acrylic monomers, resulting in a significant decline in earnings.
Double-digit sales growth in the second quarter was due above all to the acquired businesses with water-based resins and effect pigments. Earnings increased compared with the same period of 2006 thanks to higher margins, fixed cost reductions and a positive contribution to earnings from the acquired activities.
Sales
Q2 2007 compared with Q2 2006
EBIT before special items
Q2 2007 compared with Q2 2006
+ 37% + 24%
| Million € | 2007 | 2006 | Change in % |
|---|---|---|---|
| Sales | 5,836 | 4,344 | 34 |
| Thereof Construction Chemicals | 1,016 | – | – |
| Coatings | 1,277 | 1,167 | 9 |
| Functional Polymers | 1,753 | 1,640 | 7 |
| Performance Chemicals | 1,790 | 1,537 | 16 |
| Sales including intersegmental transfers | 6,051 | 4,538 | 33 |
| EBITDA | 732 | 627 | 17 |
| EBIT before special items | 489 | 457 | 7 |
| EBIT before special items in percent of sales | 8.4 | 10.5 | – |
| EBIT | 470 | 456 | 3 |
| Assets | 10,001 | 5,884 | 70 |
| Research and development expenses | 157 | 119 | 32 |
| Additions to property, plant and equipment and intangible assets | 205 | 1,083 | (81) |
Strong sales growth in the first half of 2007 was due above all to the businesses acquired in mid-2006 (volumes 3%, prices 1%, portfolio 34%, currencies –4%). Earnings also rose as a result of the acquisitions, but were negatively impacted by persistent pressure on margins for acrylic monomers.
First-half sales amounted to €1.0 billion thanks to strong growth rates, in particular in Europe. Brisk construction activity in the Middle East and in China also had a positive impact on sales. In North America, there were signs of an upturn in business following a slowdown due to unfavorable weather conditions in the first quarter. The division contributed to the segment's higher earnings even after integration costs.
The activities of the RELIUS group, which is primarily active in Europe, are reported as part of the Coatings division since January 1, 2007. These activities with industrial and architectural coatings were acquired as part of Degussa's construction chemicals business. In addition, we posted higher sales of automotive (OEM) coatings, in particular in China, and architectural coatings in South America. Sales in North America were lower due to a decline in automobile production. Overall, earnings were at the same level as in the first half of 2006.
Sales were higher than in the same period of 2006 as a result of the acquisitions. High raw material costs and competitive pressure due to high capacities, in Asia especially, had a negative impact on margins for acrylic monomers. Earnings were significantly lower than in the first half of 2006.
Sales rose in particular due to the acquired activities with water-based resins and effect pigments. The business with oilfield chemicals was also strengthened as a result of the acquisitions. Earnings were higher than in the same period of 2006 due to the acquisitions, higher margins and cost reductions.
Sales
1st Half 2007 compared with 1st half 2006
+ 34% + 7%
EBIT before special items
1st Half 2007 compared with 1st half 2006
| Million € | 2007 | 2006 | Change in % |
|---|---|---|---|
| Sales | 957 | 924 | 4 |
| Sales including intersegmental transfers | 960 | 929 | 3 |
| EBITDA | 284 | 217 | 31 |
| EBIT before special items | 235 | 165 | 42 |
| EBIT before special items in percent of sales | 24.6 | 17.9 | – |
| EBIT | 235 | 164 | 43 |
| Assets | 4,725 | 5,025 | (6) |
| Research and development expenses | 80 | 83 | (4) |
| Additions to property, plant and equipment and intangible assets | 18 | 37 | (51) |
Sales in the Agricultural Products division were higher than in the second quarter of 2006. Negative currency effects were more than offset by stronger demand, in particular for fungicides for specialty crops in Europe and for insecticides for sugar cane in Brazil (volumes 4%, prices 2%, currencies –2%). Sales in North America declined
due to unfavorable weather conditions.
Despite negative currency effects, second-quarter earnings improved considerably due to higher demand, an improved product mix and cost reductions.
| Million € | 2007 | 2006 | Change in % |
|---|---|---|---|
| Sales | 472 | 465 | 2 |
| Sales including intersegmental transfers | 473 | 469 | 1 |
| EBITDA | 59 | 96 | (39) |
| EBIT before special items | 29 | 18 | 61 |
| EBIT before special items in percent of sales | 6.1 | 3.9 | – |
| EBIT | 30 | 63 | (52) |
| Assets | 1,523 | 1,760 | (13) |
| Research and development expenses | 17 | 16 | 6 |
| Additions to property, plant and equipment and intangible assets | 17 | 318 | (95) |
Sales in the Fine Chemicals division increased slightly. Higher sales resulting from the inclusion of Engelhard's personal care business more than compensated for weaker business with premixes, the discontinuation of the lysine business as well as negative currency effects (volumes 2%, prices –1%, portfolio 4%, currencies –3%).
EBIT before special items was significantly higher compared with the second quarter of 2006. This was primarily due to lower costs resulting from restructuring measures. The second quarter of 2006 contained special income of €66 million resulting from the reduction of a fine imposed by the E.U. EBIT was therefore significantly lower.
Sales
Q2 2007 compared with Q2 2006
Agricultural Products Agricultural Products + 4% + 42%
+ 2% + 61%
EBIT before special items Q2 2007
compared with Q2 2006
Fine Chemicals Fine Chemicals
| Million € | 2007 | 2006 | Change in % |
|---|---|---|---|
| Sales | 1,854 | 1,852 | 0 |
| Sales including intersegmental transfers | 1,860 | 1,863 | 0 |
| EBITDA | 552 | 550 | 0 |
| EBIT before special items | 460 | 378 | 22 |
| EBIT before special items in percent of sales | 24.8 | 20.4 | – |
| EBIT | 455 | 444 | 2 |
| Assets | 4,725 | 5,025 | (6) |
| Research and development expenses | 155 | 163 | (5) |
| Additions to property, plant and equipment and intangible assets | 35 | 52 | (33) |
First-half sales in the Agricultural Products division were at the same level as in 2006. Negative currency effects and divestitures in 2006 were offset by a rise in demand (volumes 5%, portfolio –2%, currencies –3%). The stronger demand resulted from better seasonal conditions as well as greater use of crop protection products as a result of increased cultivation of crops for energy production. Earnings improved due to cost reductions. EBIT increased only slightly because the previous year contained special income from the divestiture of parts of the generics business in North America.
| Million € | 2007 | 2006 | Change in % |
|---|---|---|---|
| Sales | 950 | 913 | 4 |
| Sales including intersegmental transfers | 958 | 922 | 4 |
| EBITDA | 114 | 136 | (16) |
| EBIT before special items | 61 | 29 | 110 |
| EBIT before special items in percent of sales | 6.4 | 3.2 | – |
| EBIT | 58 | 73 | (21) |
| Assets | 1,523 | 1,760 | (13) |
| Research and development expenses | 33 | 33 | 0 |
| Additions to property, plant and equipment and intangible assets | 28 | 340 | (92) |
Sales rose in the Fine Chemicals division as a result of higher volumes, for example for aroma chemicals and UV filters, as well as the contribution of the acquired personal care business (volumes 3%, prices –2%, portfolio 6%, currencies –3%).
EBIT before special items more than doubled, in particular due to a reduction in fixed costs. EBIT declined compared with the first half of 2006, which contained special income resulting from the reduction of a fine imposed by the E.U. Lysine production in Gunsan, South Korea, was shut down in May as announced in the first quarter.
Sales
1st Half 2007 compared with 1st half 2006
$$
\mathbf{U}\%
$$
Fine Chemicals Fine Chemicals
EBIT before special items
1st Half 2007 compared with 1st half 2006
0% + 22%
+ 4% + 110%
| Million € | 2007 | 2006 | Change in % |
|---|---|---|---|
| Sales | 2,269 | 2,481 | (9) |
| Thereof Exploration and production | 1,144 | 1,219 | (6) |
| Natural gas trading | 1,125 | 1,262 | (11) |
| Sales including intersegmental transfers | 2,547 | 2,770 | (8) |
| EBITDA | 836 | 973 | (14) |
| Thereof Exploration and production | 746 | 835 | (11) |
| Natural gas trading | 90 | 138 | (35) |
| EBIT before special items | 708 | 868 | (18) |
| Thereof Exploration and production | 653 | 766 | (15) |
| Natural gas trading | 55 | 102 | (46) |
| EBIT before special items in percent of sales | 31.2 | 35.0 | – |
| Thereof Exploration and production | 57.1 | 62.8 | – |
| Natural gas trading | 4.9 | 8.1 | – |
| EBIT | 708 | 868 | (18) |
| Thereof Exploration and production | 653 | 766 | (15) |
| Natural gas trading | 55 | 102 | (46) |
| Assets | 4,597 | 4,802 | (4) |
| Thereof Exploration and production | 2,228 | 2,232 | 0 |
| Natural gas trading | 2,369 | 2,570 | (8) |
| Exploration expenses | 57 | 31 | 84 |
| Additions to property, plant and equipment and intangible assets | 100 | 115 | (13) |
Segment sales declined due to a significantly lower oil price in euro terms and significantly lower sales prices in the natural gas trading business (volumes 3%, prices/currencies –12%). Due to the price effect, earnings were considerably lower than in the second quarter of 2006.
Volumes in the exploration and production business were stable despite the withdrawal from oil production in Dubai. Compared with the second quarter of 2006, the average price of Brent crude declined by approximately \$1/barrel to approximately \$69/barrel. In euro terms, this corresponds to a decrease of more than €4/barrel to €51/ barrel. Sales and earnings were therefore lower than in the second quarter of 2006.
Sales in the natural gas trading business were negatively impacted, in particular by a decline in oil price-indexed sales prices. At the same time, purchase prices for natural gas rose compared with the same period of the previous year. Margins and earnings were therefore significantly below the very high level of the second quarter of 2006.
Sales
EBIT before special items
Q2 2007 compared with Q2 2006
Q2 2007 compared with Q2 2006
| Million € | 2007 | 2006 | Change in % |
|---|---|---|---|
| Sales | 5,239 | 5,466 | (4) |
| Thereof Exploration and production | 2,116 | 2,300 | (8) |
| Natural gas trading | 3,123 | 3,166 | (1) |
| Sales including intersegmental transfers | 5,803 | 6,030 | (4) |
| EBITDA | 1,805 | 1,926 | (6) |
| Thereof Exploration and production | 1,369 | 1,542 | (11) |
| Natural gas trading | 436 | 384 | 14 |
| EBIT before special items | 1,553 | 1,716 | (9) |
| Thereof Exploration and production | 1,186 | 1,404 | (16) |
| Natural gas trading | 367 | 312 | 18 |
| EBIT before special items in percent of sales | 29.6 | 31.4 | – |
| Thereof Exploration and production | 56.0 | 61.0 | – |
| Natural gas trading | 11.8 | 9.9 | – |
| EBIT | 1,553 | 1,716 | (9) |
| Thereof Exploration and production | 1,186 | 1,404 | (16) |
| Natural gas trading | 367 | 312 | 18 |
| Assets | 4,597 | 4,802 | (4) |
| Thereof Exploration and production | 2,228 | 2,232 | 0 |
| Natural gas trading | 2,369 | 2,570 | (8) |
| Exploration expenses | 100 | 60 | 67 |
| Additions to property, plant and equipment and intangible assets | 179 | 190 | (6) |
Segment sales were lower than in the very strong first half of 2006 due to a decline in volumes and prices (volumes –2%, prices/currencies –2%). Earnings remained high but declined compared with the first half of the previous year.
Volumes declined in the exploration and production business. This was due in particular to lower volumes of natural gas produced in Germany as well as the withdrawal from oil production in Dubai. Compared with the first half of 2006, the average price of Brent crude declined by more than \$2/barrel to approximately \$63/barrel. In euro terms, this corresponds to a decrease of about €6/barrel to approximately €48/barrel. As a result, the contribution to earnings from the exploration and production business decreased, primarily due to price and currency effects.
Volumes and sales in the natural gas trading business were lower than in the first half of 2006 due to the milder temperatures in Europe. Average sales prices and margins improved slightly compared with the same period of the previous year thanks to the extremely strong first quarter of 2007. The contribution of the natural gas trading business to earnings therefore increased overall in the first half of 2007.
Sales
1st Half 2007 compared with first half 2006
EBIT before special items
1st Half 2007 compared with first half 2006
| Sales by location of company |
Sales by location of customer |
EBIT before special items | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Change | Change | Change | ||||||||
| Million € | 2007 | 2006 | in % | 2007 | 2006 | in % | 2007 | 2006 | in % | |
| 2nd Quarter | ||||||||||
| Europe | 8,568 | 7,499 | 14 | 8,009 | 7,051 | 14 | 1,520 | 1,513 | 0 | |
| Thereof Germany | 5,796 | 5,544 | 5 | 2,661 | 2,439 | 9 | 1,092 | 1,125 | (3) | |
| North America (NAFTA) | 3,302 | 2,720 | 21 | 3,276 | 2,738 | 20 | 279 | 263 | 6 | |
| Asia Pacific | 2,144 | 1,707 | 26 | 2,411 | 1,871 | 29 | 173 | 125 | 38 | |
| South America, Africa, Middle East | 642 | 396 | 62 | 960 | 662 | 45 | 58 | 9 | ||
| 14,656 | 12,322 | 19 | 14,656 | 12,322 | 19 | 2,030 | 1,910 | 6 | ||
| 1st Half | ||||||||||
| Europe | 17,428 | 15,285 | 14 | 16,450 | 14,466 | 14 | 3,111 | 2,933 | 6 | |
| Thereof Germany | 12,340 | 11,301 | 9 | 6,052 | 5,411 | 12 | 2,291 | 2,140 | 7 | |
| North America (NAFTA) | 6,338 | 5,357 | 18 | 6,325 | 5,355 | 18 | 544 | 561 | (3) | |
| Asia Pacific | 4,255 | 3,355 | 27 | 4,639 | 3,648 | 27 | 380 | 240 | 58 | |
| South America, Africa, Middle East | 1,267 | 840 | 51 | 1,874 | 1,368 | 37 | 111 | 41 | 171 | |
| 29,288 | 24,837 | 18 | 29,288 | 24,837 | 18 | 4,146 | 3,775 | 10 |
Sales by location of company in Europe increased by 14% in the first half of 2007. EBIT before special items rose by €178 million to €3,111 million. The improvement was primarily due to the acquired businesses and organic growth in the chemical businesses, in particular in Petrochemicals.
Companies in North America increased sales by 26% in dollar terms and by 18% in euro terms. EBIT before special items declined by €17 million in the first half of 2007 to €544 million. Earnings were negatively affected by the shutdown of the TDI plant in Geismar, Louisiana, for several weeks in the first quarter, as well as by currency effects and divestitures in the Agricultural Products division. The acquired businesses and strong earnings in the Petrochemicals division were unable to offset this fully.
In Asia Pacific, we increased sales by 34% in local currency terms and by 27% in euro terms. EBIT before special items climbed by €140 million to €380 million. The Petrochemicals division made a significant contribution to the rise in earnings thanks to high capacity utilization rates of the plants at our Verbund sites in Nanjing, China, and Kuantan, Malaysia.
First-half sales in South America, Africa, Middle East rose by 57% in local currency terms and by 51% in euro terms. EBIT before special items increased by €70 million to €111 million. In particular, the Agricultural Products division's activities in South America contributed to the increase in sales and earnings in this region. Sales in Brazil rose above all due to stronger demand for insecticides for sugar cane, as well as a gradual recovery in the exportoriented market for soybeans. In Africa and the Middle East, sales rose in particular thanks to the contribution of the Catalysts and Construction Chemicals divisions.
BASF and IBM have entered into an agreement to jointly develop electronic chemicals required to produce the most advanced high-performance chips based on 32 nanometer technology. The technology as well as its related chemicals and materials are expected to be commercialized by the semiconductor industry as early as 2010.
A further cooperation in the area of semiconductors has been started by BASF Future Business GmbH with the U.S. company Polyera Corporation. The goal is to develop and commercialize new organic semiconductors and dielectrics for use in printed circuits. Typical applications of printed electronics will be RFID (radio frequency identification) tags, memory units and flexible displays (e-paper).
BASF and Bosch are cooperating in the area of organic photovoltaics. Together with Merck, Schott and the German Ministry of Education and Research, the two companies have launched an initiative to promote this technology by investing in research. The aim is to make the production of solar cells more cost effective and to increase the number of applications. Last year, photovoltaic modules had a global market volume of €8 billion. The segment is expected to grow by more than 20% annually until 2020.
BASF is opening up new applications for nanotechnology, for example with our innovative nanobinder COL.9®. This product forms the basis for a façade coating from Akzo Nobel named Herbol-Symbiotec™. The symbiosis between organic and inorganic components makes the coating extremely dirt repellent.
Our finishing product Mincor® TX TT provides technical textiles with a self-cleaning effect based on nanostructured surfaces. In June, it received an innovation prize in the category "new applications" at the Techtextil International Trade Fair for Engineering Textiles and Nonwovens in Frankfurt.
You can find more detailed information about Mincor TX TT® inside the front cover of this report.
In the first half of 2007, we spent €682 million on research and development compared with €583 million in the same period of 2006.
Compared with the end of 2006, the number of BASF Group employees declined by 539 to 94,708 as of June 30, 2007. As of June 30, 2007, the regional distribution of BASF's employees was as follows: 64% in Europe; 16% in North America; 14% in Asia Pacific; and 6% in South America, Africa, Middle East.
Compared with the same period of 2006, personnel costs in the first half of 2007 rose by 15.9% to €3,272 million. This was primarily due to the effect of last year's acquisitions.
| Employees by region | June 30, 2007 |
Dec. 31, 2006 |
Change in % |
|---|---|---|---|
| Europe | 60,816 | 61,444 | (1) |
| North America (NAFTA) | 15,381 | 15,513 | (1) |
| Asia Pacific | 12,898 | 12,788 | 1 |
| South America, Africa, Middle East | 5,613 | 5,502 | 2 |
| 94,708 | 95,247 | (1) |
Four strategic guidelines govern the way in which we act. Rigorous value-based management, a strong customer focus, the best team in industry and sustainable development form the foundations of our corporate strategy and offer major opportunities for BASF.
Innovations are an important basis for BASF's profitable growth. We have therefore increased the budget for our five growth clusters – energy management, nanotechnology, white (industrial) biotechnology, plant biotechnology and raw material change – to more than €900 million for the period 2006 through 2008. By 2015, we expect annual sales of between €2 billion and €4 billion from innovations based on research and development in these growth clusters.
Investments in existing high-growth areas also open up opportunities for BASF. For example, we are considering the construction of a new plant for MDI (diphenylmethane diisocyanate) in Chongqing, China; startup is planned from 2010 onward. In addition, we are expanding existing Verbund sites. In Ludwigshafen we are expanding production capacity for our innovative insulation material Neopor®. We are also planning to expand the successful Verbund site in Nanjing, China, which we operate with our Chinese joint venture partner Sinopec Corp.
By expanding global partnerships, BASF is in a position to respond flexibly in world markets. In Gazprom we have a reliable partner in the transport, storage and marketing of natural gas in Europe. In the area of plant biotechnology, the U.S. company Monsanto is our partner in the research, development and commercialization of stress tolerant and higher yielding crops.
We will continue to optimize our portfolio through acquisitions, divestitures, restructuring measures and cost reduction programs. In our Fine Chemicals division, for example, we are implementing a program to increase efficiency that has already helped to significantly improve earnings.
The statements on risks made in the Financial Report 2006 remain valid.
Based on currently available information, there are no significant individual risks at the present time or in the foreseeable future. Neither does the total sum of individual risks pose a threat to the continued existence of the BASF Group.
Detailed information is available on pages 72 to 75 of the Financial Report 2006, "Risk Management System and Risks of Future Development."
Our forecast for 2007 is now based on the following conditions:
We want to continue to grow faster than the market. In 2007, we expect significantly higher sales than in 2006. Scheduled plant turnarounds, in particular in the Petrochemicals division, are likely to reduce earnings by €150 million in the second half of 2007. In addition, we plan to further increase spending on research and development. We nevertheless expect full-year EBIT before special items to at least match the previous year's record level.
No significant individual risks —
| 2nd Quarter | 1st Half | ||||||
|---|---|---|---|---|---|---|---|
| Million € | 2007 | 2006 Change in % | 2007 | 2006 Change in % | |||
| Sales | 14,656 | 12,322 | 18.9 | 29,288 | 24,837 | 17.9 | |
| Cost of sales | 10,519 | 8,658 | 21.5 | 20,874 | 17,546 | 19.0 | |
| Gross profit on sales | 4,137 | 3,664 | 12.9 | 8,414 | 7,291 | 15.4 | |
| Selling expenses | 1,385 | 1,143 | 21.2 | 2,710 | 2,246 | 20.7 | |
| General and administrative expenses | 276 | 207 | 33.3 | 522 | 393 | 32.8 | |
| Research and development expenses | 337 | 278 | 21.2 | 682 | 583 | 17.0 | |
| Other operating income | 183 | 168 | 8.9 | 339 | 418 | (18.9) | |
| Other operating expenses | 315 | 407 | (22.6) | 822 | 841 | (2.3) | |
| Income from operations | 2,007 | 1,797 | 11.7 | 4,017 | 3,646 | 10.2 | |
| Income from participations | 53 | 30 | 76.7 | 71 | 45 | 57.8 | |
| Interest result | (125) | (55) | (237) | (103) | |||
| Other financial result | 7 | 48 | (85.4) | 7 | 102 | (93.1) | |
| Financial result | (65) | 23 | (159) | 44 | |||
| Income before taxes and minority interests | 1,942 | 1,820 | 6.7 | 3,858 | 3,690 | 4.6 | |
| Income taxes | 871 | 866 | 0.6 | 1,646 | 1,719 | (4.2) | |
| Income before minority interests | 1,071 | 954 | 12.3 | 2,212 | 1,971 | 12.2 | |
| Minority interests | 47 | 34 | 38.2 | 153 | 101 | 51.5 | |
| Net income | 1,024 | 920 | 11.3 | 2,059 | 1,870 | 10.1 | |
| Earnings per share (€) | |||||||
| Undiluted | 2.08 | 1.82 | 14.3 | 4.16 | 3.69 | 12.7 | |
| Diluted | 2.08 | 1.82 | 14.3 | 4.16 | 3.69 | 12.7 |
| Million € | June 30, 2007 | June 30, 2006 | Change in % Dec. 31, 2006 | Change in % | |
|---|---|---|---|---|---|
| Long-term assets | |||||
| Intangible assets | 8,597 | 6,938 | 23.9 | 8,922 | (3.6) |
| Property, plant and equipment | 14,799 | 14,782 | 0.1 | 14,902 | (0.7) |
| Investment accounted for using the equity method | 663 | 261 | 154.0 | 651 | 1.8 |
| Other financial assets | 1,358 | 1,099 | 23.6 | 1,190 | 14.1 |
| Deferred taxes | 563 | 899 | (37.4) | 622 | (9.5) |
| Other long-term assets | 1,615 | 557 | 189.9 | 612 | 163.9 |
| 27,595 | 24,536 | 12.5 | 26,899 | 2.6 | |
| Short-term assets | |||||
| Inventories | 6,530 | 6,122 | 6.7 | 6,672 | (2.1) |
| Accounts receivable, trade | 9,089 | 7,825 | 16.2 | 8,223 | 10.5 |
| Other receivables and miscellaneous short-term assets | 2,785 | 5,492 | (49.3) | 2,607 | 6.8 |
| Marketable securities | 80 | 104 | (23.1) | 56 | 42.9 |
| Cash and cash equivalents | 734 | 392 | 87.2 | 834 | (12.0) |
| 19,218 | 19,935 | (3.6) | 18,392 | 4.5 | |
| Total assets | 46,813 | 44,471 | 5.3 | 45,291 | 3.4 |
| Million € | June 30, 2007 | June 30, 2006 | Change in % Dec. 31, 2006 | Change in % | |
|---|---|---|---|---|---|
| Stockholders' equity | |||||
| Subscribed capital | 1,256 | 1,289 | (2.6) | 1,279 | (1.8) |
| Capital surplus | 3,168 | 3,130 | 1.2 | 3,141 | 0.9 |
| Retained earnings | 13,798 | 12,337 | 11.8 | 13,302 | 3.7 |
| Other comprehensive income | 465 | 356 | 30.6 | 325 | 43.1 |
| Minority interests | 593 | 476 | 24.6 | 531 | 11.7 |
| 19,280 | 17,588 | 9.6 | 18,578 | 3.8 | |
| Long-term liabilities | |||||
| Provisions for pensions and similar obligations | 1,252 | 1,193 | 4.9 | 1,452 | (13.8) |
| Other provisions | 3,151 | 2,749 | 14.6 | 3,080 | 2.3 |
| Deferred taxes | 1,825 | 1,203 | 51.7 | 1,441 | 26.6 |
| Financial indebtedness | 6,718 | 5,920 | 13.5 | 5,788 | 16.1 |
| Other long-term liabilities | 984 | 1,323 | (25.6) | 972 | 1.2 |
| 13,930 | 12,388 | 12.4 | 12,733 | 9.4 | |
| Short-term liabilities | |||||
| Accounts payable, trade | 4,258 | 3,215 | 32.4 | 4,755 | (10.5) |
| Provisions | 2,562 | 2,856 | (10.3) | 2,848 | (10.0) |
| Tax liabilities | 1,218 | 1,178 | 3.4 | 858 | 42.0 |
| Financial indebtedness | 3,282 | 5,037 | (34.8) | 3,695 | (11.2) |
| Other short-term liabilities | 2,283 | 2,209 | 3.3 | 1,824 | 25.2 |
| 13,603 | 14,495 | (6.2) | 13,980 | (2.7) | |
| Total stockholders' equity and liabilities | 46,813 | 44,471 | 5.3 | 45,291 | 3.4 |
| 1st Half | |||
|---|---|---|---|
| Million € | 2007 | 2006 | |
| Net income | 2,059 | 1,870 | |
| Depreciation and amortization of long-term assets | 1,319 | 1,129 | |
| Changes in net working capital | (663) | (611) | |
| Miscellaneous items | 28 | (180) | |
| Cash provided by operating activities | 2,743 | 2,208 | |
| Payments related to intangible assets and property, plant and equipment | (1,056) | (983) | |
| Acquisitions/divestitures | (17) | (6,987) | |
| Financial investments and other items | (15) | 268 | |
| Cash used in investing activities | (1,088) | (7,702) | |
| Proceeds from capital increases/repayments | (753) | (663) | |
| Changes in financial liabilities | 556 | 6,772 | |
| Dividends | (1,568) | (1,124) | |
| Cash provided by/(used in) financing activities | (1,765) | 4,985 | |
| Net changes in cash and cash equivalents | (110) | (509) | |
| Cash and cash equivalents as of beginning of year and other changes | 844 | 901 | |
| Cash and cash equivalents as shown on the balance sheet | 734 | 392 |
At €2,743 million, cash provided by operating activities in the first half of 2007 was €535 million higher than in the same period of 2006. The improvement in earnings and the higher depreciation and amortization of long-term assets contained therein contributed to the 24% increase. The considerable expansion of the business led to higher net working capital, in particular for trade accounts receivable. In the first half of 2006, miscellaneous items primarily reflects the reclassification of gains on the sale of securities as cash used in investing activities.
In the first six months of 2007, cash used in investing activities amounted to €1,088 million. Thereof, €1,080 million was spent on property, plant and equipment. The first half of 2006 contained expenditures of approximately €7 billion for acquisitions.
Financing activities led to a cash outflow of €1,765 million. Dividends amounting to €1,484 million were paid to shareholders of BASF Aktiengesellschaft and €84 million to minority shareholders in Group companies.
We spent €753 million on share buybacks in the first six months of 2007, thereof €372 million in the second quarter.
Cash and cash equivalents amounted to €734 million as of June 30, 2007 compared with €834 million at the end of 2006. In the same period, financial indebtedness rose by €517 million to €10.0 billion. Compared with year-end 2006, net debt increased by €617 million to €9,266 million. Compared with December 31, 2006, the equity ratio was unchanged at 41%. With an AA-/A-1+/outlook stable rating from Standard and Poor's and an Aa3/P-1/outlook negative rating from Moody's, BASF has significantly stronger ratings than its competitors in the chemical industry.
| Income and expense items | ||
|---|---|---|
| 1st Half | ||
| Million € | 2007 | 2006 |
| Net income before minority interests | 2,212 | 1,971 |
| Fair-value changes in available-for-sale securities | 144 | (2) |
| Cash-flow hedges | 47 | 23 |
| Change in foreign currency translation adjustments | (32) | (360) |
| Actuarial gains/losses from pensions and other obligations | 1,049 | 368 |
| Deferred taxes | (390) | (132) |
| Minority interests | (7) | (15) |
| Total income and expense recognized directly in equity | 811 | (118) |
| Total income and expense for the period | 3,023 | 1,853 |
| Thereof BASF | 2,877 | 1,767 |
| Thereof minority interests | 146 | 86 |
| Retained earnings |
Other comprehensive income | ||||||
|---|---|---|---|---|---|---|---|
| Million € | Actuarial gains/ losses |
Foreign currency translation adjustment |
Fair value changes in available-for sale securities |
Cash-flow hedges |
Total of other comprehen sive income |
||
| As of January 1, 2007 | (782) | 26 | 341 | (42) | 325 | (457) | |
| Additions | 1,049 | – | 144 | 47 | 191 | 1,240 | |
| Releases | – | (32) | – | – | (32) | (32) | |
| Deferred taxes | (371) | 1 | (3) | (17) | (19) | (390) | |
| As of June 30, 2007 | (104) | 5 | 482 | (12) | 465 | 361 | |
| As of January 1, 2006 | (894) | 475 | 258 | (37) | 696 | (198) | |
| Additions | 368 | – | – | 23 | 23 | 391 | |
| Releases | – | (360) | (2) | – | (362) | (362) | |
| Deferred taxes | (131) | 7 | 1 | (9) | (1) | (132) | |
| As of June 30, 2006 | (657) | 122 | 257 | (23) | 356 | (301) |
| As of June 30, 2007 | 490,485,000 | 1,256 | 3,168 | 13,798 | 465 | 593 | 19,280 |
|---|---|---|---|---|---|---|---|
| Changes in scope of consolidation and other changes |
– | – | – | (4) | – | – | (4) |
| Income and expense recognized directly in equity |
– | – | – | 678 | 140 | (7) | 811 |
| Net income | – | – | – | 2,059 | – | 153 | 2,212 |
| Dividends paid | – | – | – | (1,484) | – | (84) | (1,568) |
| Capital contribution by minority interests | – | – | – | – | – | – | – |
| Share buyback and cancellation of own shares including own shares intented to be cancelled |
(9,195,000) | (23) | 27 | (753) | – | – | (749) |
| As of January 1, 2007 | 499,680,000 | 1,279 | 3,141 | 13,302 | 325 | 531 | 18,578 |
| Million € | Number of subscribed shares outstanding |
Subscribed capital |
Capital surplus |
Retained earnings |
Other com prehensive income |
Minority interests |
Stockholders' equity |
| As of June 30, 2006 | 503,580,000 | 1,289 | 3,130 | 12,337 | 356 | 476 | 17,588 |
|---|---|---|---|---|---|---|---|
| Changes in scope of consolidation and other changes |
– | – | – | (1) | – | – | (1) |
| Income and expense recognized directly in equity |
– | – | – | 237 | (340) | (15) | (118) |
| Net income | – | – | – | 1,870 | – | 101 | 1,971 |
| Dividends paid | – | – | – | (1,014) | – | (110) | (1,124) |
| Capital withdrawal by minority interests | – | – | – | – | – | 18 | 18 |
| Share buyback and cancellation of own shares including own shares intented to be cancelled |
(10,799,000) | (28) | 30 | (683) | – | – | (681) |
| As of January 1, 2006 | 514,379,000 | 1,317 | 3,100 | 11,928 | 696 | 482 | 17,523 |
| Million € | Number of subscribed shares outstanding |
Subscribed capital |
Capital surplus |
Retained earnings |
Other com prehensive income |
Minority interests |
Stockholders' equity |
| Sales EBITDA |
Income from operations (EBIT) before special items |
Income from operations (EBIT) |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Change | Change | Change | Change | |||||||||
| Million € | 2007 | 2006 | in % | 2007 | 2006 | in % | 2007 | 2006 | in % | 2007 | 2006 | in % |
| Chemicals | 3,660 | 2,443 | 49.8 | 754 | 409 | (84.4) | 602 | 351 | 71.5 | 593 | 263 | 125.5 |
| Plastics | 3,480 | 3,168 | 9.8 | 491 | 442 | 11.1 | 362 | 315 | 14.9 | 361 | 314 | 15.0 |
| Peformance Products | 3,010 | 2,197 | 37.0 | 377 | 298 | 26.5 | 260 | 209 | 24.4 | 251 | 209 | 20.1 |
| Agricultural Products & Nutrition |
1,429 | 1,389 | 2.9 | 343 | 313 | 9.6 | 264 | 183 | 44.3 | 265 | 227 | 16.7 |
| Thereof Agricultural Products |
957 | 924 | 3.6 | 284 | 217 | 30.9 | 235 | 165 | 42.4 | 235 | 164 | 43.3 |
| Fine Chemicals | 472 | 465 | 1.5 | 59 | 96 | (38.5) | 29 | 18 | 61.1 | 30 | 63 | (52.4) |
| Oil & Gas | 2,269 | 2,481 | (8.5) | 836 | 973 | (14.1) | 708 | 868 | (18.4) | 708 | 868 | (18.4) |
| Other1 | 808 | 644 | 25.5 | (138) | (61) | (166) | (16) | (171) | (84) | |||
| 14,656 | 12,322 | 18.9 | 2,663 | 2,374 | 12.2 | 2,030 | 1,910 | 6.3 | 2,007 | 1,797 | 11.7 |
| Research and development expenses |
Assets2 | Additions to fixed assets3 | Amortization and depreciation4 |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Change | Change | Change | Change | ||||||||||
| Million € | 2007 | 2006 | in % | 2007 | 2006 | in % | 2007 | 2006 | in % | 2007 | 2006 | in % | |
| Chemicals | 49 | 35 | 40.0 | 10,632 | 10,903 | (2.5) | 181 | 3,011 | (94.0) | 161 | 146 | 10.3 | |
| Plastics | 35 | 32 | 9.4 | 6,974 | 6,867 | 1.6 | 128 | 116 | 10.3 | 130 | 128 | 1.6 | |
| Peformance Products | 78 | 59 | 32.2 | 10,001 | 5,884 | 70.0 | 118 | 1,002 | (88.2) | 126 | 89 | 41.6 | |
| Agricultural Products & Nutrition |
97 | 99 | (2.0) | 6,248 | 6,785 | (7.9) | 35 | 355 | (90.1) | 78 | 86 | (9.3) | |
| Thereof Agricultural Products |
80 | 83 | (3.6) | 4,725 | 5,025 | (6.0) | 18 | 37 | (51.4) | 49 | 53 | (7.5) | |
| Fine Chemicals | 17 | 16 | 6.3 | 1,523 | 1,760 | (13.5) | 17 | 318 | (94.7) | 29 | 33 | (12.1) | |
| Oil & Gas | 1 | – | – | 4,597 | 4,802 | (4.3) | 100 | 115 | (13.0) | 128 | 105 | 21.9 | |
| Other1 | 77 | 53 | 45.3 | 8,361 | 9,230 | (9.4) | 35 | 185 | (81.1) | 33 | 23 | 43.5 | |
| 337 | 278 | 21.2 | 46,813 | 44,471 | 5.3 | 597 | 4,784 | (87.5) | 656 | 577 | 13.7 |
1 "Other" includes the fertilizers business and other businesses as well as expenses, income and assets not allocated to the segments. This item also includes foreign currency results from financial indebtedness that are not allocated to the segments, hedging of forecasted sales as well as from currency positions that are macrohedged [€(17) million in the second quarter of 2007 (€38 million in the second quarter 2006)].
2 The assets of "Other" include the assets of the fertilizers business and other businesses as well as assets that are not allocated to the segments (financial assets, cash and cash equivalents, financial receivables, deferred taxes; second quarter 2007: €6,106 million, second quarter 2006: €7,189 million).
3 Property, plant and equipment and intangible assets; previous year's values adjusted following the purchase price allocation for Engelhard Corp.
4 Property, plant and equipment and intangible assets
| Sales | EBITDA | Income from operations (EBIT) before special items |
Income from operations (EBIT) |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Change | Change | Change | Change | ||||||||||
| Million € | 2007 | 2006 | in % | 2007 | 2006 | in % | 2007 | 2006 | in % | 2007 | 2006 | in % | |
| Chemicals | 7,149 | 4,682 | 52.7 | 1,540 | 861 | 78.9 | 1,230 | 668 | 84.1 | 1,211 | 580 | 108.8 | |
| Plastics | 6,828 | 6,259 | 9.1 | 943 | 898 | 5.0 | 687 | 647 | 6.2 | 686 | 645 | 6.4 | |
| Peformance Products | 5,836 | 4,344 | 34.3 | 732 | 627 | 16.7 | 489 | 457 | 7.0 | 470 | 456 | 3.1 | |
| Agricultural Products & Nutrition |
2,804 | 2,765 | 1.4 | 666 | 686 | (2.9) | 521 | 407 | 28.0 | 513 | 517 | (0.8) | |
| Thereof Agricultural Products |
1,854 | 1,852 | 0.1 | 552 | 550 | 0.4 | 460 | 378 | 21.7 | 455 | 444 | 2.5 | |
| Fine Chemicals | 950 | 913 | 4.1 | 114 | 136 | (16.2) | 61 | 29 | 110.3 | 58 | 73 | (20.5) | |
| Oil & Gas | 5,239 | 5,466 | (4.2) | 1,805 | 1,926 | (6.3) | 1,553 | 1,716 | (9.5) | 1,553 | 1,716 | (9.5) | |
| Other1 | 1,432 | 1,321 | 8.4 | (350) | (223) | (57.0) | (334) | (120) | (416) | (268) | (55.2) | ||
| 29,288 | 24,837 | 17.9 | 5,336 | 4,775 | 11.7 | 4,146 | 3,775 | 9.8 | 4,017 | 3,646 | 10.2 |
| Research and development expenses |
Assets2 | Additions to fixed assets3 | Amortization and depreciation4 |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Change | Change | Change | Change | |||||||||
| Million € | 2007 | 2006 | in % | 2007 | 2006 | in % | 2007 | 2006 | in % | 2007 | 2006 | in % |
| Chemicals | 95 | 66 | 43.9 | 10,632 | 10,903 | (2.5) | 311 | 3,173 | (90.2) | 329 | 281 | 17.1 |
| Plastics | 71 | 73 | (2.7) | 6,974 | 6,867 | 1.6 | 220 | 334 | (34.1) | 257 | 253 | 1.6 |
| Peformance Products | 157 | 119 | 31.9 | 10,001 | 5,884 | 70.0 | 205 | 1,083 | (81.1) | 262 | 171 | 53.2 |
| Agricultural Products & Nutrition |
188 | 196 | (4.1) | 6,248 | 6,785 | (7.9) | 63 | 392 | (83.9) | 153 | 169 | (9.5) |
| Thereof Agricultural Products |
155 | 163 | (4.9) | 4,725 | 5,025 | (6.0) | 35 | 52 | (32.7) | 97 | 106 | (8.5) |
| Fine Chemicals | 33 | 33 | – | 1,523 | 1,760 | (13.5) | 28 | 340 | (91.8) | 56 | 63 | (11.1) |
| Oil & Gas | 1 | – | – | 4,597 | 4,802 | (4.3) | 179 | 190 | (5.8) | 252 | 210 | 20.0 |
| Other1 | 170 | 129 | 31.8 | 8,361 | 9,230 | (9.4) | 58 | 212 | (72.6) | 66 | 45 | 46.7 |
| 682 | 583 | 17.0 | 46,813 | 44,471 | 5.3 | 1,036 | 5,384 | (80.8) | 1,319 | 1,129 | 16.8 |
1 "Other" includes the fertilizers business and other businesses as well as expenses, income and assets not allocated to the segments, This item also includes foreign currency results from financial indebtedness that are not allocated to the segments, hedging of forecasted sales as well as from currency positions that are macrohedged [€(14) million in the first half of 2007 (€93 million in the first half of 2006)].
2 The assets of "Other" include the assets of the fertilizers business and other businesses as well as assets that are not allocated to the segments (financial assets, cash and cash equivalents, financial receivables, deferred taxes; first half 2007: €6,106 million, first half 2006: €7,189 million).
3 Property, plant and equipment and intangible assets; previous year's values adjusted following the purchase price allocation for Engelhard Corp.
4 Property, plant and equipment and intangible assets
The Consolidated Financial Statements of BASF Group for the year ended December 31, 2006 were prepared according to the International Financial Reporting Standards (IFRS) valid as of the balance sheet date. The current interim financial statements as of June 30, 2007 were prepared using the same accounting policies.
BASF's Financial Report for fiscal 2006 is available on the Internet at corporate.basf.com/financial-report.
The interim financial statements have not been audited.
The Consolidated Financial Statements include BASF Aktiengesellschaft, the parent company, as well as all material subsidiaries on a fully consolidated basis. Material jointly operated companies are proportionally consolidated. The number of fully and proportionally consolidated companies has developed as follows:
| 2007 | 2006 | |
|---|---|---|
| As of January 1 | 328 | 180 |
| Thereof proportionally consolidated | 19 | 15 |
| First-time consolidations | 15 | 151 |
| Thereof proportionally consolidated | – | 4 |
| Thereof changes in the consolidation method | – | – |
| Deconsolidations | 20 | 3 |
| Thereof proportionally consolidated | – | – |
| As of June 30/December 31 | 323 | 328 |
| Thereof proportionally consolidated | 19 | 19 |
Fifteen companies, thereof 12 companies due to changes in the structuring of participating interests and three companies due to their increased importance, have been included in the scope of consolidation since January 1, 2007.
Twenty companies have been deconsolidated since the beginning of 2007 because they were merged with other BASF companies or sold. Mergers of Group companies in the first half of 2007 were primarily associated with the integration of Engelhard Corp. and the construction chemicals business acquired in 2006.
| Financial result | 2nd Quarter | 1st Half | ||
|---|---|---|---|---|
| 2007 | 2006 | 2007 | 2006 | |
| Income from companies accounted for using the equity method | 24 | 7 | 42 | 17 |
| Other income from participations | 29 | 23 | 29 | 28 |
| Income from participations | 53 | 30 | 71 | 45 |
| Interest expenses | 159 | 117 | 303 | 209 |
| Interest income | 34 | 62 | 66 | 106 |
| Interest result | (125) | (55) | (237) | (103) |
| Income from write-ups/write-downs and from the disposal of securities and receivables |
38 | 84 | ||
| Net financing income/(expense) from defined benefit plans and other long-term personnel provisions |
8 | 9 | 17 | 22 |
| Interest accrued on other interest-bearing liabilities | (10) | (11) | (19) | (23) |
| Construction interest | 13 | 9 | 24 | 16 |
| Other financial expenses and income | (4) | 3 | (15) | 3 |
| Other financial result | 7 | 48 | 7 | 102 |
| Financial result | (65) | 23 | (159) | 44 |
Interest expenses rose due to the acquisitions that were made in mid-2006.
Detailed information on financial indebtedness is provided in Note 12.
Income from companies accounted for using the equity method increased primarily due to the shares in associated companies resulting from the acquisition of Engelhard Corp.
In the first and second quarters of 2006, the financial result contained proceeds from the disposal of securities.
Income before taxes and minority interests is broken down into domestic and foreign income as follows:
| Income before taxes and minority interests | 2nd Quarter | 1st Half | |||
|---|---|---|---|---|---|
| Million € | 2007 | 2006 | 2007 | 2006 | |
| Germany | 478 | 641 | 1,114 | 1,217 | |
| Foreign oil production branches of German companies | 497 | 543 | 854 | 922 | |
| Other foreign | 967 | 636 | 1,890 | 1,551 | |
| 1,942 | 1,820 | 3,858 | 3,690 |
Income taxes are broken down into domestic and foreign income taxes as follows:
| Income taxes | 2nd Quarter | 1st Half | |||
|---|---|---|---|---|---|
| Million € | 2007 | 2006 | 2007 | 2006 | |
| Germany | 193 | 209 | 483 | 457 | |
| Foreign oil production branches of German companies | 458 | 504 | 790 | 855 | |
| Thereof noncompensable | 331 | 383 | 589 | 655 | |
| Other foreign | 220 | 153 | 373 | 407 | |
| 871 | 866 | 1,646 | 1,719 | ||
| Tax rate (%) | 44.9 | 47.6 | 42.7 | 46.6 | |
On July 6, 2007 the Business Tax Reform 2008 was approved by the Federal Council of Germany. Among other things, as of the beginning of 2008, this tax reform will reduce corporate income tax to 15% and trade income tax will be treated as a non-deductible business expense. Taking into account all changes, the average corporate tax rate will be reduced to 29%. The tax reform will therefore also affect the calculation of the deferred taxes shown in the Consolidated Financial Statements.
Because the tax reform was approved in July and hence after the end of the second quarter, deferred taxes will be recalculated in compliance with international accounting standards in the interim report for the third quarter of 2007.
| Minority interests | 2nd Quarter | 1st Half | |||
|---|---|---|---|---|---|
| Million € | 2007 | 2006 | 2007 | 2006 | |
| Minority interests in profits | 50 | 38 | 161 | 112 | |
| Minority interests in losses | (3) | (4) | (8) | (11) | |
| 47 | 34 | 153 | 101 |
Minority interests in profits related primarily to the Group companies engaged in natural gas trading as well as to the operating company for the steam cracker in Port Arthur, Texas. Minority interests in losses were mainly related to BASF Plant Science.
| Earnings per share | 2nd Quarter | 1st Half | |||
|---|---|---|---|---|---|
| 2007 | 2006 | 2007 | 2006 | ||
| Net income | (Million €) | 1,024 | 920 | 2,059 | 1,870 |
| Number of outstanding shares (weighted average) | (Thousand) | 492,452 | 505,600 | 494,901 | 507,332 |
| Earnings per share | (€) | 2.08 | 1.82 | 4.16 | 3.69 |
The calculation of earnings per share is based on the weighted average number of common shares outstanding. The calculation of diluted earnings per common share reflects all possible outstanding common shares and their effect on income.
In the first half of 2007 and in the first half of 2006, the potentially dilutive instruments were antidilutive and should not be considered.
| Developments | 1st Half 2007 | ||
|---|---|---|---|
| Million € | Intangible assets | Property, plant and equipment |
Investments accounted for using the equity method and other financial assets |
| Acquisition costs | |||
| Balance as of January 1 | 10,624 | 46,631 | 2,127 |
| Additions | 78 | 1,080 | 236 |
| Disposals | 167 | 212 | 45 |
| Exchange differences | (129) | (231) | (19) |
| Balance as of June 30 | 10,406 | 47,268 | 2,299 |
| Amortization and depreciation | |||
| Balance as of January 1 | 1,702 | 31,729 | 286 |
| Additions | 268 | 1,055 | |
| Disposals | 149 | 184 | 8 |
| Exchange differences | (12) | (131) | |
| Balance as of June 30 | 1,809 | 32,469 | 278 |
| Net book value as of June 30 | 8,597 | 14,799 | 2,021 |
Additions to property, plant and equipment in the first half of 2007 related to a number of capital expenditure projects. The most important were as follows: at the site in Antwerp, Belgium, the expansion of the steam cracker, plants for acrylic acid and superabsorbents, as well as MDI production capacity, and the construction of an HPPO plant; in Geismar, Louisiana, the expansion of polyol production; in Port Arthur, Texas, investments to increase availability of the steam cracker; and in Freeport, Texas, the startup of a plant for superabsorbents.
Additions in the first half of 2006 were primarily related to the acquisition of Engelhard Corp.
The purchase price allocations for Engelhard Corp. and for the construction chemicals business acquired from Degussa AG were completed in the first half of 2007.
| Million € | June 30, 2007 |
Dec. 31, 2006 |
|---|---|---|
| Raw materials and factory supplies | 1,795 | 1,656 |
| Work-in-process, finished goods and merchandise | 4,627 | 4,962 |
| Advance payments and services-in-process | 108 | 54 |
| 6,530 | 6,672 |
Work-in-process and finished goods and merchandise are combined into one item due to the production conditions in the chemical industry. Services-in-process relate primarily to inventory not invoiced at the balance sheet date. Inventories are valued using the weighted average cost method.
| Million € | Outstanding shares |
Subscribed capital |
Capital reserves |
|---|---|---|---|
| Outstanding shares as of June 30, 2007 | 499,680,000 | 1,279 | 3,141 |
| Repurchased shares intended to be cancelled | (9,195,000) | (23) | 27 |
| Outstanding shares as disclosed in the financial statements | 490,485,000 | 1,256 | 3,168 |
The Board of Executive Directors received approval at the Annual Meeting on April 26, 2007, to buy back BASF's shares to a maximum amount of 10% of subscribed capital by October 25, 2008. The shares shall be purchased on the stock exchange or through a public purchase offer addressed to all shareholders. If BASF shares are purchased on a stock exchange, the price paid for the shares may not be higher than the highest market price on the buying day and may not be lower than 25% of that market price. In the case of a public purchase offer, the price offered by BASF may be a maximum of 10% higher than the highest market price on the third trading day prior to the publishing of the public purchase offer. This authorization supersedes the prior authorization to repurchase BASF shares granted by the Annual Meeting on May 4, 2006.
The Board of Executive Directors is authorized to cancel the repurchased shares without the approval of a further resolution at the Annual Meeting. A sale of treasury shares is only authorized after a corresponding resolution at the Annual Meeting, except when, with the approval of
the Supervisory Board, the shares are used to acquire companies, parts of companies or participations in companies in return for shares.
In the first half of 2007, a total of 9,195,000 shares, or 1.84% of the issued shares, were acquired. The average purchase price was €81.86 per share. BASF spent a total of €753 million on the share buyback program in the first half of 2007. As of June 30, 2007, 10,605,000 shares of BASF stock were held by BASF Aktiengesellschaft. Therein were included 1,410,000 shares that were acquired in 2006.
These shares were acquired for the purpose of cancellation. Therefore, these shares reduce the subscribed capital as of June 30, 2007.
On July 10, 2007, the Board of Executive Directors of BASF Aktiengesellschaft approved the cancellation of 10,605,000 BASF shares. The shares were cancelled by the end of July 2007. The total number of outstanding shares thus declined to 490,485,000.
| Million € | June 30, 2007 | Dec. 31, 2006 |
|---|---|---|
| Legal reserves | 345 | 311 |
| Other retained earnings | 13,453 | 12,991 |
| 13,798 | 13,302 |
Changes in the scope of consolidation led to an increase in the legal reserves of €3.1 million in the first half of 2007. Transfers from other retained earnings increased legal reserves by €29.3 million. The offsetting of actuarial gains and losses resulted in an increase in retained earnings of €677.8 million.
The valuations using the projected unit credit method per IAS 19 were carried out under the following assumptions:
| Germany | Foreign | |||
|---|---|---|---|---|
| % | June 30, 2007 Dec. 31, 2006 | June 30, 2007 | Dec. 31, 2006 | |
| Discount rate | 5.00 | 4.50 | 5.81 | 5.31 |
| Projected increase of wages and salaries | 2.50 | 2.50 | 4.46 | 4.46 |
| Projected pension increase | 1.75 | 1.75 | 0.56 | 0.56 |
| Germany | Foreign | ||||
|---|---|---|---|---|---|
| % | 2007 | 2006 | 2007 | 2006 | |
| Discount rate | 4.50 | 4.25 | 5.31 | 5.42 | |
| Projected increase of wages and salaries | 2.50 | 2.50 | 4.46 | 4.48 | |
| Projected pension increase | 1.75 | 1.50 | 0.56 | 0.49 | |
| Expected return on plan assets | 4.93 | 4.92 | 7.35 | 7.71 |
The assumptions regarding the overall expected longterm rate of return are based on the desired portfolio structure and forecasts of expected individual asset class returns. The forecasts are based on long-term historical average returns and take into consideration the current yield level and the inflation trend. In the first half of 2007, the interest rate was adjusted to take account of developments in the capital markets. The resulting actuarial gains led to a significant increase in other long-term assets and to a decline in provisions for pensions and similar obligations.
| Million € | June 30, 2007 |
June 30, 2006 |
Dec. 31, 2006 |
|---|---|---|---|
| Other long-term provisions |
3,151 | 2,749 | 3,080 |
| Other short-term provisions |
2,562 | 2,856 | 2,848 |
| 5,713 | 5,605 | 5,928 |
In natural gas trading provisions are established for outstanding invoices related to gas supplies that have not been priced as of the balance sheet date. These provisions declined in the first half of 2007 compared with December 31, 2006. Provisions for bonuses and severance payments declined in the first half of 2007 as a result of usage.
On the other hand, provisions for BASF's stock option program (BOP) increased in the first half of 2007 due to the rise in BASF's share price.
| Liabilities | June 30, 2007 | June 30, 2006 | Dec. 31, 2006 | ||||
|---|---|---|---|---|---|---|---|
| Less than one | More than one | Less than one | More than one | Less than one | More than one | ||
| Million € | year | year | year | year | year | year | |
| Accounts payable, trade | 4,258 | – | 3,215 | – | 4,755 | – | |
| Bonds and other liabilities to the capital market | 2,887 | 5,984 | 4,454 | 5,002 | 3,219 | 5,000 | |
| Liabilities to credit institutions | 395 | 734 | 583 | 918 | 476 | 788 | |
| Financial indebtedness | 3,282 | 6,718 | 5,037 | 5,920 | 3,695 | 5,788 | |
| Tax liabilities | 1,218 | – | 1,178 | – | 858 | – | |
| Advances received on orders | 42 | – | 39 | – | 109 | – | |
| Liabilities on bills | 60 | 11 | 34 | 3 | 47 | 3 | |
| Liabilities related to social security | 132 | 27 | 108 | 1 | 136 | 18 | |
| Miscellaneous liabilities | 1,815 | 763 | 1,741 | 1,129 | 1,405 | 755 | |
| Deferred income | 234 | 183 | 287 | 190 | 127 | 196 | |
| Other liabilities | 2,283 | 984 | 2,209 | 1,323 | 1,824 | 972 | |
effective interest method
| Million € | Nominal volume |
Effective | interest rate June 30, 2007 | June 30, 2006 | Dec. 31, 2006 |
|---|---|---|---|---|---|
| 3.5% Euro Bond 2003/2010 | 1,000 | 3.63% | 996 | 995 | 996 |
| 3.375% Euro Bond 2005/2012 | 1,400 | 3.42% | 1,397 | 1,397 | 1,397 |
| 4% Euro Bond 2006/2011 | 1,000 | 4.05% | 998 | 998 | 998 |
| 4.5% Euro Bond 2006/2016 | 500 | 4.62% | 496 | 495 | 495 |
| 3-Month EURIBOR Bond 2006/2009 | 500 | variable | 500 | 500 | 500 |
| Extendible floating rate notes 2007/2010 (\$1,350 million) | 1,000 | variable | 1,000 | – | – |
| Other bonds | 597 | 694 | 614 | ||
| Commercial paper | 2,887 | 4,377 | 3,219 | ||
| Bonds and other liabilities to the capital markets | 8,871 | 9,456 | 8,219 | ||
| Liabilities to credit institutions | 1,129 | 1,501 | 1,264 | ||
| 10,000 | 10,957 | 9,483 |
Material supply relationships exist for the supply of oil and gas between companies of the BASF Group and the proportionally consolidated joint venture companies Wintershall Erdgas Handelshaus GmbH & Co. KG, Berlin, and Wintershall Erdgas Handelshaus Zug AG, Zug, Switzerland. These transactions are conducted at arm's length prices and business terms. The unconsolidated portion of these supplies amounted to €300.1 million in the first half of 2007 and €388.3 million in the first half of 2006.
Several members of the Supervisory Board and Board of Executive Directors also serve on the boards of executive directors or supervisory boards of companies with which BASF maintains business relations. These transactions are conducted at arm's length prices and business terms.
BASF has not issued loans to members of the Board of Executive Directors or the Supervisory Board.
To the best of our knowledge, and in accordance with the applicable reporting principles for interim financial reporting, the interim consolidated financial statements give a true and fair view of the assets, liabilities, financial position and profit or loss of the group, and the interim management report of the group includes a fair review of the
development and performance of the business and the position of the group, together with a description of the principal opportunities and risks associated with the expected development of the group for the remaining months of the financial year.
Ludwigshafen, July 30, 2007
BASF Aktiengesellschaft Board of Executive Directors This report contains forward-looking statements under the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on current expectations, estimates and projections of BASF management and currently available information. They are not guarantees of future performance, involve certain risks and uncertainties that are difficult to predict and are based upon assumptions as to future events that may not prove to be accurate. Many factors could cause the actual results, performance or achievements of BASF to be materially different from those that may be expressed or implied by such statements. Such factors include those discussed in BASF's Form 20-F filed with the Securities and Exchange Commission. The Report on Form 20-F is available on the Internet at corporate.basf.com/20-F-Report. We do not assume any obligation to update the forward-looking statements contained in this report.
Interim Report Third Quarter 2007: October 30, 2007 Annual Results 2007: February 21, 2008 Interim Report First Quarter 2008 and Annual Meeting: April 24, 2008 Interim Report First Half 2008: July 31, 2008
Corporate Media Relations Michael Grabicki: Phone: +49 621 60-99938, Fax: +49 621 60-92693
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General Inquiries Phone: +49 621 60-0, Fax: +49 621 60-42525
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