BASF : in Japan 2020

BASF in Japan

Report 2020

Index

Index

About this report														2
BASF Group 2020 at a glance							3
The BASF Group												4
BASF in the regions						10
BASF in Asia Pacific							12
BASF in Japan							13
Major Contacts in Japan				19
Ten-Year-Summary			20

About this report

The "BASF in Japan" Report is published annually as a concise document about the performance of our ­activities across the three dimensions of sustainability - economy, environment and society - in Japan. The reporting­ period for this publication is the financial year 2020. This report also carries an overview of BASF Group along with its ­financial performance, prepared in accordance with the requirements of the International Financial Reporting Standards (IFRS), and, where applicable, the German Commercial Code as well as the German Accounting Standards (GAS). The emissions, waste, energy and water use of consolidated joint operations are included pro rata, based on our stake. The employee numbers refer to employees within the BASF Group scope of consolidation as of December­ 31, 2020.

2	BASF In Japan Report 2020

BASF Group 2020 at a glance

Segment data

Key data

Sales			million €
EBITDA before special itemsa		million €
EBITDAa			million €
EBIT before special itemsa		million €
EBITa			million €
Net income			million €
ROCE			%
Earnings per share			€
Total assets			million €
Investments including
acquisitionsb			million €
Employees at year-end
Personnel expenses			million €
Research and
development expenses			million €
Greenhouse gas	million metric tons
emissionsc	of CO	2	equivalents
Energy efficiency in	kilograms of sales
production processes	product/MWh
Accelerator sales			million €

Number of on-site sustainability audits of raw material suppliers

	2020			2019	+/-
	59,149		59,316	-0.3%
	7,435			8,324	-10.7%
	6,494			8,185	-20.7%
	3,560			4,643	-23.3%
	-191		4,201	.
	-1,060		8,421		.
	1.7		7.7	-
	-1.15		9.17	.
	80,292			86,950	-7.7%
	4,869			4,097	18.8%

	2020		2019		+/-
	110,302		117,628	-6.2%
	10,576		10,924	-3.2%
	2,086		2,158	-3.3%
	20.8		20.1		3.5%
	540		598		-9.7%
	16,740		15,017		11.5%
	50		81		-38.3%

Chemicals		Million €
Sales	2020	8,071
	2019	9,532
EBIT before special items	2020	445
	2019	791
Materials		Million €
Sales	2020	10,736
	2019	11,466
EBIT before special items	2020	835
	2019	1,003
Industrial Solutions		Million €
Sales	2020	7,644
	2019	8,389
EBIT before special items	2020	822
	2019	820
Surface Technologies		Million €
Sales	2020	16,659
	2019	13,142
EBIT before special items	2020	484
	2019	722
Nutrition & Care		Million €
Sales	2020	6,019
	2019	6,075
EBIT before special items	2020	773
	2019	793
Agricultural Solutions		Million €
Sales	2020	7,660
	2019	7,814
EBIT before special items	2020	970
	2019	1,095

1. Restated figures 2019; for more information, see basf.com/report
2. Additions to property, plant and equipment and intangible assets
3. Excluding sale of energy to third parties

3

The BASF Group

The BASF Group

At BASF, we create chemistry for a sustainable future. We combine economic success with environmental protection and social responsibility. The approximately 110,000 employees in the BASF Group work on contributing to the success of our customers in nearly all sectors and almost every country in the world. Our portfolio is divided into the Chemicals, Ma- terials, Industrial Solutions, Surface Technologies, Nutrition & Care and Agricultural Solutions segments.

Organization of the BASF Group

We have 11 divisions grouped into six segments: Chemicals: Petrochemicals, Intermediates

Materials: Performance Materials, Monomers Industrial Solutions: Dispersions & Pigments, Performance Chemicals

  Surface Technologies: Catalysts, Coatings

Nutrition & Care: Care Chemicals, Nutrition & Health

  Agricultural Solutions: Agricultural Solutions

We take a differentiated approach to steering our businesses according to market-specific requirements and the competitive environment. We provide a high level of transparency around the results of our segments and show the importance of the Verbund and value chains to our business success. BASF aims to differentiate­ its businesses from their competitors and establish a high-performance organization to enable BASF to be successful in an increasingly competitive market environment.

In line with BASF's corporate strategy, the operating divisions, service units, the regions and a Corporate Center have formed the cornerstones of the BASF organization since January 1, 2020. We have streamlined our administration, sharpened the roles of services and regions, and simplified procedures and processes. These organizational changes have created the conditions for greater customer proximity, increased competitiveness and profitable growth.

Our divisions bear operational responsibility here and are organized according to sectors or products. They manage our 52 global and regional business units and develop strategies for the 75 strategic business units.

The regional and country units represent BASF locally and support the growth of business units with local proximity to customers. For financial reporting purposes, we organize the regional divisions into four regions: Europe; North America; Asia Pacific; South America / Africa / Middle East.

Together with the development units in our operating divisions, the three global research divisions - Process Research & Chemical Engi- neering, Advanced Materials & Systems Research and Bioscience Research - safeguard our innovative capacity and competitiveness.

Five service units provide competitive services for the operating divisions and sites: Global Engineering Services; Global Digital Ser- vices; Global Procurement; European Site & Verbund Management; Global Business Services (finance; human resources; environmental protection, health and safety; intellectual property; communications; procurement, supply chain and inhouse consulting services).

Following the bundling of services and resources and the implementation of a wide-ranging digitalization strategy, the number of employees in the Global Business Services unit worldwide will decline by up to 2,000 (from 8,000 currently) by the end of 2022. From 2023 onward, the division expects to achieve annual cost savings of over €200 million.

The Corporate Center units support the Board of Executive Directors in steering the company as a whole. These include central tasks from the following areas: strategy; finance; law, compliance and tax; environmental protection, health and safety; human resources; communications; investor relations and internal audit.

The ongoing Excellence Program is expected to contribute €2 billion to EBITDA annually from the end of 2021 onward compared with baseline 2018, including from the reduction of around 6,000 positions worldwide until the end of 2021. This decrease results from the organizational simplification and from efficiency gains in admin- istration, the service units and the operating divisions. In addition, central, functional and regional structures are being streamlined in connection with portfolio changes.

To increase reporting transparency, the figures for investments accounted for using the equity method were restated in the first quarter of 2020. Some investments are not an integral part of the BASF Group. These include, in particular, the shares in Wintershall Dea GmbH, Kassel/Hamburg, Germany, and Solenis UK International Ltd., London, United Kingdom. Since the first quarter of 2020, these have been classified as purely financial investments and reported separately from the shareholdings that are integral to the main business activities of the BASF Group. One material equity- accounted interest that has been classified as integral is BASF-YPC Company Ltd., Nanjing, China. Income from non-integral companies accounted for using the equity method is no longer presented in the BASF Group's EBIT and EBIT before special items, but under net income from shareholdings. Due to its increased significance, this will be presented as a separate subtotal within income before income taxes and is no longer part of the financial result. Integral and non- integral investments accounted for using the equity method are also presented separately in the balance sheet. The statement of income for 2019 has been restated accordingly.

On September 30, 2020, BASF completed the divestiture of its construction chemicals business to an affiliate of Lone Star, a global private equity firm, as agreed in December 2019.1 The purchase price on a cash and debt-free basis was €3.17 billion. The Construction Chemicals division was previously reported under the Surface

1 The construction chemicals business was transferred in two steps, on September 30, 2020, and on November 30, 2020.

4	BASF In Japan Report 2020

The BASF Group

Technologies segment. The divested construction chemicals business had around 7,500 employees and operated production sites and sales offices in more than 60 countries. It generated sales of around €2.6 billion in 2019. The disposal gain and the income after taxes of the construction chemicals business until closing are presented in the income after taxes of BASF Group as a separate item ("Income after taxes from discontinued operations").

Sites and Verbund

BASF has companies in around 90 countries. We operate six Verbund sites and 241 additional production sites worldwide. Our Verbund site in Ludwigshafen, Germany, is the world's largest chemical complex owned by a single company that was developed as an integrated network. This was where the Verbund principle was originally established and continuously optimized. We then implemented it at additional sites. In 2020, we started construction of the first plants at the planned integrated Verbund site in Zhanjiang, China.

The Verbund system is one of BASF's great strengths. We add value by using our resources efficiently. The Production Verbund intelligently links production units and their energy supply so that, for example, the waste heat of one plant provides energy to others. Furthermore, one facility's by-products can serve as feedstocks else- where. 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 production, applying it for technologies, the market and digitalization as well. Expert knowledge is pooled in our global research divisions.

Procurement and sales markets

BASF supplies products and services to around 90,000 customers1 from various sectors in almost every country in the world. Our customer portfolio ranges from major global customers and small and medium-sized enterprises to end consumers.

We work with over 70,000 Tier 1 suppliers2 from different sectors worldwide. They supply us with important raw materials, chemicals, investment goods and consumables, and perform a range of services. Important raw materials (based on volume) include naphtha, liquid gas, natural gas, benzene and caustic soda.

Business and competitive environment

BASF's global presence means that it operates in the context of local, regional and global developments and a wide range of conditions. These include:

• Global economic environment
• Legal and political requirements (such as European Union regulations)
• International trade agreements

• Industry standards
• Environmental agreements (such as the E.U. Emissions Trading System)
• Social aspects (such as the U.N. Universal Declaration of Human Rights)

BASF holds one of the top three market positions in around 70% 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 competitors from Asia and the Middle East in particular to gain increasing significance in the years ahead.

Corporate legal structure

As the publicly traded parent company of the BASF Group, BASF SE takes a central position: Directly or indirectly, it holds the shares in the companies belonging to the BASF Group, and is also one of the largest operating companies. The majority of Group companies cover a broad spectrum of our business. In the BASF Group Consolidated Financial Statements, 273 companies including BASF SE are fully consolidated. We consolidate nine joint operations on a proportional basis, and account for 25 companies using the equity method.

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 In Japan Report 2020

5