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BASF A.G. - Interim Results

BASF A.G Dynamic BASF on Course for Profitable Growth; Second-Quarter Results 2006 BASF (NYSE:BF)(FWB:BAS)(LSE:BFA): ᅡᄊ April - June 2006 published on August 2, 2006 ᅡᄊ -- Strong sales growth of 16% ᅡᄊ -- EBIT before special items up 15% ᅡᄊ -- New growth opportunities from acquisitions ᅡᄊ -- Outlook: Higher sales and EBIT before special items compared with 2005 Overview 2nd Quarter Million EUR Change 2006 2005 in % Sales 12,322 10,581 16.5 Income from operations before interest, taxes, depreciation and amortization (EBITDA) 2,374 2,149 10.5 Income from operations (EBIT) before special items 1,910 1,657 15.3 Income from operations (EBIT) 1,797 1,587 13.2 Financial result 23 (82) . Income before taxes and minority interests 1,820 1,505 20.9 Net income 920 778 18.3 Earnings per share (EUR) 1.82 1.48 23.0 EBIT before special items in percent of sales 15.5 15.7 - Cash provided by operating activities 760 977 (22.2) Additions to fixed assets (a) 4,957 850 483.2 Excluding acquisitions 491 482 1.9 Amortization and depreciation (a) 577 562 2.7 Segment assets (end of period) (b) 35,241 28,631 23.1 Personnel costs 1,430 1,393 2.7 Number of employees (end of period) 86,794 80,946 7.2 Overview 1st Half Million EUR Change 2006 2005 in % Sales 24,837 20,664 20.2 Income from operations before interest, taxes, depreciation and amortization (EBITDA) 4,775 4,168 14.6 Income from operations (EBIT) before special items 3,775 3,220 17.2 Income from operations (EBIT) 3,646 3,086 18.1 Financial result 44 (37) . Income before taxes and minority interests 3,690 3,049 21.0 Net income 1,870 1,639 14.1 Earnings per share (EUR) 3.69 3.08 19.8 EBIT before special items in percent of sales 15.2 15.6 - Cash provided by operating activities 2,208 2,081 6.1 Additions to fixed assets (a) 5,557 1,212 358.5 Excluding acquisitions 964 844 14.2 Amortization and depreciation (a) 1,129 1,082 4.3 Segment assets (end of period) (b) - - - Personnel costs 2,822 2,670 5.7 Number of employees (end of period) - - - ᅡᄊ * Tangible and intangible fixed assets (including acquisitions) ᅡᄊ ** Tangible and intangible fixed assets, inventories and business-related receivables ᅡᄊ Contents 1 BASF Group Business Review 13 Consolidated Statements of Income 3 BASF Shares 14 Consolidated Balance Sheets 4 Significant Events and 15 Consolidated Statements of Cash Flows Outlook 6 Chemicals 16 Consolidated Statements of Recognized 7 Plastics Income and Expense 8 Performance Products 17 Consolidated Statements of Stockholders' 9 Agricultural Products & Equity Nutrition 10 Oil & Gas 18 Segment Reporting 11 Regions 20 Explanations to the Interim Financial 12 Overview of Other Topics Statements ᅡᄊ Cover photo: ᅡᄊ Shah Kazi, senior research engineer from the BASF Catalysts R&D Center in Iselin, New Jersey and Dr. Henrik Junicke, product manager for catalysts in Ludwigshafen. ᅡᄊ News from our innovation centers ᅡᄊ Wax in the wall for a pleasant indoor climate ᅡᄊ BASF's phase-change material Micronal(R) PCM absorbs daytime temperature peaks ᅡᄊ Summer, sun, sunshine - although much longed for throughout the winter months, they can soon become too much of a good thing when they arrive. Modern lightweight construction houses and steel and glass office complexes with transparent frontages can become more like saunas overnight. BASF's SmartBoard(TM) offers a solution to this problem. The cooling properties of this innovative gypsum wallboard are provided by the raw material Micronal(R) PCM, a microencapsulated latent heat store based on paraffin wax that absorbs excess heat. PCM stands for phase change material. Micronal(R) is an effective thermal buffer due to the physical phenomena that occur when wax changes from the solid to the liquid state. During this phase transition, a large amount of thermal energy (known as latent heat) is consumed without the temperature of the material itself changing. ᅡᄊ The waxes contained in Micronal(R) PCM melt at 23C or 26C (73/79F) depending on the application. When they melt, they absorb large amounts of heat from the environment, thereby preventing the room temperature from rising further. At night, when the outside temperature falls, the heat bound when the wax solidifies is released and the heat store is ready for a new summer's day. ᅡᄊ Thanks to microencapsulation the wax can be safely integrated into building materials like wall plaster, mortar or gypsum boards: Microscopically small droplets of wax are enclosed in a virtually indestructible acrylic polymer shell that withstands even drilling and sawing. Depending on the material, between 20 and 40 percent Micronal(R) PCM may be used. ᅡᄊ The ready-to-use gypsum wallboard Micronal(R) PCM SmartBoard(TM) is very user-friendly: although only 1.5 centimeters thick, each square meter contains around three kilograms of Micronal(R) PCM, and its heat insulating capacity corresponds to that of a brick wall 12 centimeters thick. As a result, it acts as an important functional component of the building that actively improves the indoor climate. ᅡᄊ The SmartBoard(TM) wallboards can be obtained directly through BASF's subsidiary BTC Specialty Chemical Distribution GmbH in Cologne. But several other industrial partners are also offering PCM construction materials based on Micronal(R) PCM. The German company H+H Celcon, for example, has incorporated BASF's phase-change material in aerated cement blocks. The heat storage capacity of the blocks, which are sold under the brand name CelBloc Plus and recognizable by their characteristic green color, is thus considerably enhanced. ᅡᄊ The perspex microcapsules - about 5 micrometers in diameter - contain a storage medium such as paraffin. ᅡᄊ When the contents melt, heat is taken up and is given out again only when the material solidifies. ᅡᄊ News from our innovation centers ᅡᄊ Biotechnologists fight dreaded potato disease ᅡᄊ Microscope image of the fungus Phytophthora infestans (light red structure in the center of the picture). ᅡᄊ The fungus spreads through leaf tissue in potatoes and causes potato blight. ᅡᄊ Two genes from wild potatoes protect crops ᅡᄊ Phytophthora infestans is every potato farmer's nightmare. Once this harmful fungus shows up, the dreaded potato blight can't be far behind. This disease can result in considerable crop losses. In the mid-19th century, it caused a famine in Ireland, and even today around 20 percent of potato harvest losses in the world are due to this disease. Researchers at BASF Plant Science GmbH have now developed a genetically improved potato that is resistant to this harmful pathogen. ᅡᄊ The starting point for this modern innovation is a remote valley in the Central American Andes. Various wild types of potato grow here and potato blight is also rampant. But not all the potato plants are infested. Some seem to have developed a very effective strategy to protect themselves against the pathogen that causes the disease. ᅡᄊ Scientists discovered that the resistant potato plants had at least one gene that the infested plants did not have. This gene ensures that the plant recognizes the harmful fungus in the first place. To set its defense mechanisms in motion, the plant needs to know that the fungus is there. ᅡᄊ That is precisely the problem with the modern cultivated potato. These plants would be able to fight off the fungus if they were only able to recognize its presence. This encouraged scientists to attempt to transfer the benefits of the wild potato to its cultivated counterpart. Conventional breeding methods were attempted for years but without success. Although the new types were partially resistant, they had other negative properties such as the lower yield typical of the wild potato. The breakthrough finally came in recent years with the aid of biotechnology: Scientists isolated a resistance gene of the wild potato and transferred it to the cultivated potato. ᅡᄊ Because the fungus adapts to varying environmental conditions, mutates and forms a large number of variants, scientists from BASF Plant Science identified other resistance genes in the wild potato. Together with potato breeders, a potato with two additional genes taken from the wild potato has now been developed. ᅡᄊ The potato from BASF Plant Science has already demonstrated its resistance in the greenhouse. Field trials are now being carried out at a number of locations to investigate whether various climatic conditions adversely affect the resistance of the genetically improved potato. The potato can be launched on the market as soon as these trials have been completed and following E.U. approval. ᅡᄊ BASF Group Business Review ᅡᄊ -- Sales volumes up 7% ᅡᄊ -- Sales growth of 16% ᅡᄊ -- EBIT before special items up 15% ᅡᄊ Sales ᅡᄊ Compared with the same period of the previous year, sales in the second quarter of 2006 increased by 16% to EUR 12.3 billion. The sales growth was due to the following factors: ᅡᄊ Factors influencing sales in comparison with previous year % of sales 2nd Quarter 1st Half Volumes 7 7 Prices 7 9 Acquisitions/divestitures 2 2 Currencies 0 2 16 20 ᅡᄊ The new Catalysts division has been assigned to the Chemicals segment. This division includes the catalysts business and precious metals trading acquired on June 6, 2006 as part of Engelhard Corporation as well as our own existing catalysts business, which was formerly part of the Inorganics division. In addition to the effect of the activities of Engelhard, which contributed sales of EUR 240 million, sales in the Chemicals segment were boosted by the Verbund site in Nanjing, China, which started operations in June 2005. Furthermore, sales increased due to sales price increases to pass on significantly higher raw material costs. ᅡᄊ In the Plastics segment, sales rose considerably due to higher sales volumes in the Styrenics and Polyurethanes division. ᅡᄊ Second-quarter sales by segment Million EUR Chemicals 2006 2,443 22% 2005 2,007 Plastics 2006 3,168 8% 2005 2,924 Performance 2006 2,197 5% Products 2005 2,098 Agricultural Products 2006 1,389 (5)% & Nutrition 2005 1,465 Oil & Gas 2006 2,481 50% 2005 1,650 ᅡᄊ In the Performance Products segment, all operating divisions posted higher sales due to higher volumes and a slight increase in sales prices. ᅡᄊ Volumes and sales prices declined in the Agricultural Products & Nutrition segment. Together with the divestiture of major parts of the generics business in North America, this resulted in significantly lower sales in the Agricultural Products division. The Fine Chemicals division posted significantly higher sales thanks to the pharmaceutical contract manufacturing business of the Orgamol Group that was acquired in the fourth quarter of 2005 and the personal care business acquired from Engelhard Corporation. ᅡᄊ Sales in the Oil & Gas segment rose strongly due to higher volumes and prices. Special items 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Million EUR 2006 2005 2006 2005 2006 2005 2006 2005 Special items in: - Income from operations (16) (64) (113) (70) (65) (109) - Financial result - - - - 222 - (16) (64) (113) (70) 157 (109) ᅡᄊ Earnings ᅡᄊ Compared with the same period of 2005, we increased income from operations (EBIT) before special items by 15% to EUR 1,910 million. ᅡᄊ Margins in the Chemicals segment declined due to significantly higher prices for energy and raw materials. In addition, earnings were negatively affected by maintenance turnarounds at several plants as well as plant outages. ᅡᄊ In the Plastics segment, increased raw material costs reduced our margins. Nevertheless, higher volumes led to a rise in earnings. ᅡᄊ Earnings in the Performance Products segment declined due to severe pressure on margins, in particular in the Functional Polymers division. ᅡᄊ Second-quarter earnings in the Agricultural Products division were impacted by lower volumes due to the late start to the season in Europe as well as subdued demand from customers in North America. ᅡᄊ In the Fine Chemicals division, earnings increased as a result of the contribution from the acquired businesses as well as a reduction in fixed costs compared with the same period of the previous year. ᅡᄊ The Oil & Gas segment posted the strongest earnings growth, due partly to higher crude oil prices and increased volumes in the natural gas trading business. ᅡᄊ Compared with the same period of 2005, second-quarter EBIT rose by 13% to EUR 1,797 million. Special items in income from operations were related to the integration of Engelhard Corporation, as well as expenses for restructuring, which are primarily recorded under "Other" in the course of the year. The reduction of a fine imposed by the E.U. in 2001 for anti-trust violations related to vitamin sales resulted in special income of EUR 66 million. ᅡᄊ Second-quarter EBIT before special items Million EUR Chemicals 2006 351 (15)% 2005 415 Plastics 2006 315 15% 2005 274 Performance 2006 209 (23)% Products 2005 272 Agricultural Products 2006 183 (39)% & Nutrition 2005 302 Oil & Gas 2006 868 50% 2005 579 ᅡᄊ The financial result increased by EUR 105 million to EUR 23 million. This was due in particular to lower net financing costs for pension obligations recorded under "Other financial result" following the transfer of approximately EUR 3.7 billion to a contractual trust arrangement at the end of 2005. ᅡᄊ Income before taxes and minority interests rose by 21% to EUR 1,820 million. ᅡᄊ The tax rate was 47.6% compared with 46.3% in the second quarter of 2005. Taxes for oil production that are noncompensable with German corporate income tax amounted to EUR 383 million compared with EUR 267 million in the same period of the previous year. ᅡᄊ Net income increased 18% to EUR 920 million. Earnings per share were EUR 1.82 compared with EUR 1.48 in the second quarter of 2005. ᅡᄊ BASF Shares ᅡᄊ -- BASF shares better than DAX 30 and EURO STOXX 50 indices in the second quarter ᅡᄊ -- Shares buybacks for EUR 285 million in the second quarter of 2006 BASF shares 2nd Quarter 1st Half 2006 2006 Performance (with dividends reinvested) BASF (%) (0.14) (0.16) DAX 30 (%) (4.80) + 5.09 EURO STOXX 50 (%) (3.66) + 3.97 Share prices and trade (XETRA trading) Average (EUR) 64.07 63.78 High (EUR) 69.49 69.49 Low (EUR) 58.97 58.97 Close (EUR) 62.78 62.78 Average daily trade in shares (million shares) 3.37 3.20 ᅡᄊ BASF share performance ᅡᄊ After a relatively flat period in the first quarter of 2006, the price of BASF's stock increased significantly in April and reached a record high of EUR 69.49 on April 21. In May, the stock pared gains in a market characterized by high crude oil prices and anticipated interest rate increases and closed the quarter with a performance of - 0.14% (assuming reinvestment of the EUR 2.00 per share dividend paid on May 5). As a result, BASF shares performed better than the DAX 30 and EURO STOXX 50 indices, which declined by 4.80% and 3.66%, respectively, in the second quarter. ᅡᄊ Share buybacks ᅡᄊ In the second quarter of 2006, BASF Aktiengesellschaft bought back 4.54 million shares for a total of EUR 285 million and an average price of EUR 62.83 per share. ᅡᄊ Up to the end of the second quarter, BASF had bought back shares for a total of EUR 342 million under the EUR 500 million share buyback program that was announced in February 2006. This program is scheduled to run until the Annual Meeting in 2007. ᅡᄊ We also plan to buy back shares in the future. ᅡᄊ Up-to-date information on BASF shares is available on the Internet at www.basf.de/share. ᅡᄊ You can reach BASF's investor relations team by calling +49 621 60-48230 or by sending an e-mail to [email protected] ᅡᄊ Significant Events and Outlook ᅡᄊ Acquisition of Engelhard Corporation ᅡᄊ Following the acceptance of BASF's cash offer by the majority of shareholders, BASF gained control of Engelhard Corporation on June 6, 2006. BASF owns 100% of the company since June 9, 2006. ᅡᄊ As a result of this acquisition, we will become a leading supplier in the fast growing market for catalysts. The combination of the two companies' R&D activities will create a unique Know-how Verbund and thus open up further potential for innovation and growth in the area of catalysis. ᅡᄊ The acquisition involves 50 production sites and 22 R&D centers in more than 20 countries. Approximately 7,300 Engelhard employees have transferred to BASF as a result of the acquisition. The purchase price for Engelhard shares amounted to $ 4.8 billion or appoximately EUR 3.8 billion. ᅡᄊ Engelhard Corporation reported the following results for fiscal 2005: Key data Engelhard Corporation Million $ 2005 Sales 4,597 Income from operations 299 Assets 3,879 ᅡᄊ The catalysts business will be managed in BASF's new Catalysts operating division and reported as part of the Chemicals segment. Engelhard's remaining businesses will be integrated primarily in BASF's Performance Products segment and in the Fine Chemicals operating division. ᅡᄊ The companies acquired as a result of the acquisition are included in BASF Group's consolidated financial statements as of June 6, 2006. ᅡᄊ Acquisition of Degussa's construction chemicals business ᅡᄊ The acquisition of the construction chemicals business of Degussa AG by BASF Aktiengesellschaft was completed on July 1. ᅡᄊ With BASF's chemical expertise and Degussa's know-how in construction chemicals applications, we offer our customers a greater range of innovative products and help them to be more successful in the competitive construction sector. BASF's strong presence in Asia will additionally generate growth opportunities in this region's booming construction sector. ᅡᄊ The acquisition includes production sites and sales centers in over 50 countries as well as an R&D center in Trostberg, Germany. Approximately 7,400 employees have transferred from Degussa to BASF. The purchase price for equity was just under EUR 2.2 billion. In addition, the transaction was associated with debt of EUR 0.5 billion. ᅡᄊ Degussa reported the following results for its construction chemicals business in fiscal 2005: Key data Degussa Construction Chemicals Million $ 2005 Sales 1,968 Income from operations 223 Assets 1,472 ᅡᄊ The activities will be reported in the new Construction Chemicals division, which is part of the Performance Products segment. The companies acquired as a result of the acquisition will be included in BASF Group's consolidated financial statements as of July 1, 2006. The acquisition price of EUR 2.7 billion for Degussa's construction chemicals business is reported under "Other receivables" as of June 30, 2006. ᅡᄊ Further significant events ᅡᄊ The acquisition of Johnson Polymer was completed on July 1, 2006. It provides BASF with a range of water-based resins that complements our portfolio of high solids and UV resins for the coatings and paints industry and will strengthen our market presence, in particular in North America. ᅡᄊ The acquisition of Johnson Polymer involves one production site each in the United States and in the Netherlands, as well as technical centers and offices in Asia Pacific. The purchase price was $470 million on a cash and debt-free basis. ᅡᄊ In 2005, Johnson Polymer posted sales of approximately $360 million and had 430 employees worldwide. The business will be integrated into the Performance Chemicals division and included in BASF Group's consolidated financial statements as of July 1, 2006. The acquisition price of EUR 376 million for Johnson Polymer is reported under "Other receivables" as of June 30, 2006. ᅡᄊ BASF acquired CropDesign on June 27, 2006. This Belgian biotechnology company will be integrated in BASF Plant Science GmbH, in which all of our plant biotechnology activities are combined. CropDesign will strengthen our research network thanks to the workforce of over 70 employees at its research facilities in Ghent, Belgium. ᅡᄊ On July 10, BASF and the China Petroleum & Chemical Corporation (SINOPEC Corp.) signed a $500 million agreement to expand their joint Verbund site in Nanjing, China. BASF-YPC Co. Ltd. - the 50-50 joint venture between BASF and SINOPEC - plans to invest in additional downstream plants and expand the capacity of its steam cracker. The new activities are expected to come on stream in 2009. ᅡᄊ On July 7, 2006, the Supervisory Board of BASF Aktiengesellschaft extended the appointment of BASF Chairman Dr. Juergen Hambrecht until the end of the Annual Meeting in 2011. ᅡᄊ At the same time, the Supervisory Board extended the appointments of Klaus Peter Loebbe and Dr. Stefan Marcinowski to the Board of Executive Directors. Loebbe's appointment will now run until the end of the Annual Meeting in 2008, Marcinowski's until May 2012. ᅡᄊ Outlook ᅡᄊ We expect the following conditions in 2006: ᅡᄊ -- Average oil prices (Brent) of about $ 65/barrel ᅡᄊ -- An average euro/dollar exchange rate of $ 1.25 per euro and a further increase in interest rates ᅡᄊ -- Global economic growth and chemical production growth (excluding pharmaceuticals) of more than 3% ᅡᄊ On this basis, we expect that our business will continue to develop positively in the further course of the year. Persistently high oil prices are likely to lead to an increase in raw material costs and margin pressure. Additional sales price increases are therefore necessary. ᅡᄊ Major risk factors continue to be the political situation in unstable areas, especially in the Middle East, and the development of the crude oil price. ᅡᄊ In view of the strong business performance in the first half, we remain optimistic for the full year: We expect to post significantly higher sales and higher EBIT before special items compared with the previous year's strong level. ᅡᄊ Furthermore, our acquisitions will contribute to sales in the second half, bringing total sales to more than EUR 50 billion. ᅡᄊ We anticipate an additional contribution to EBIT before special items. ᅡᄊ Chemicals ᅡᄊ -- Higher sales and volumes in all divisions ᅡᄊ -- Margins and earnings decline due to high raw material and energy pricesas well as plant shutdowns ᅡᄊ -- New Catalysts operating division Overview Chemicals 2nd Quarter Million EUR Change 2006 2005 in % Sales 2,443 2,007 22 Thereof Inorganics 285 250 14 Catalysts 259 18 . Petrochemicals 1,324 1,227 8 Intermediates 575 512 12 EBITDA 409 477 (14) EBIT before special items 351 415 (15) EBIT before special items in percent of sales 14.4 20.7 - EBIT 263 345 (24) Assets 10,903 6,026 81 Overview Chemicals 1st Half Million EUR 2006 2005 Change in % Sales 4,682 3,829 22 Thereof Inorganics 570 439 30 Catalysts 280 36 . Petrochemicals 2,698 2,363 14 Intermediates 1,134 991 14 EBITDA 861 1,021 (16) EBIT before special items 668 841 (21) EBIT before special items in percent of sales 14.3 22.0 - EBIT 580 771 (25) Assets - - - ᅡᄊ We increased sales significantly in the second quarter. In addition to higher volumes and sales prices, sales were boosted by Engelhard's catalyst business, which was acquired at the beginning of June (volumes 6%, prices 4%, portfolio 12%). EBIT before special items was negatively impacted by significantly higher prices for raw materials and energy as well as by plant turnarounds and outages. EBIT contains special charges related to the integration of Engelhard Corporation. ᅡᄊ Inorganics ᅡᄊ Sales rose especially due to strong demand for inorganic basic chemicals and specialties. Significantly higher prices for natural gas put pressure on margins, especially for methane-based derivatives, and led to a decline in earnings. ᅡᄊ The catalysts business unit, which was previously part of the Inorganics division, was assigned to the new Catalysts division with effect from January 1, 2006. The previous year's figures were restated accordingly. ᅡᄊ Catalysts ᅡᄊ BASF acquired Engelhard Corporation at the beginning of June and has started the integration process. Effective June 6, Engelhard's catalysts business and precious metals trading are reported in this new operating division together with BASF's existing catalyst business. ᅡᄊ Petrochemicals ᅡᄊ Higher prices and additional volumes from production at the site in Nanjing, China, led to an increase in sales compared with the same period of 2005. Business with plasticizers and solvents was strong. Earnings were significantly lower, however, due to high and rising raw material costs, as well as plant turnarounds and outages. Following shutdowns lasting several weeks, plants in Ludwigshafen, Antwerp, Belgium, and Port Arthur, Texas, are again operating at high capacity utilization rates. ᅡᄊ Intermediates ᅡᄊ As in previous quarters, demand continued to rise in the second quarter of 2006. Sales were higher than in the same period of 2005. Very high prices for raw materials worldwide could only be passed on to a limited extent in the form of higher sales prices. Earnings were at the same level as in the previous year. ᅡᄊ Plastics ᅡᄊ -- Further increase in sales and earnings ᅡᄊ -- Higher volumes of polyurethanes and styrenics ᅡᄊ -- Startup of new plants in Kuantan, Malaysia, and Caojing, China Overview Plastics 2nd Quarter Million EUR Change 2006 2005 in % Sales 3,168 2,924 8 Thereof Styrenics 1,232 1,128 9 Performance Polymers 738 732 1 Polyurethanes 1,198 1,064 13 EBITDA 442 400 11 EBIT before special items 315 274 15 EBIT before special items in percent of sales 9.9 9.4 - EBIT 314 280 12 Assets 6,867 6,591 4 Overview Plastics 1st Half Million EUR 2006 2005 Change in % Sales 6,259 5,724 9 Thereof Styrenics 2,383 2,264 5 Performance Polymers 1,488 1,421 5 Polyurethanes 2,388 2,039 17 EBITDA 898 780 15 EBIT before special items 647 543 19 EBIT before special items in percent of sales 10.3 9.5 - EBIT 645 548 18 Assets - - - ᅡᄊ The Plastics segment posted an increase in sales compared with the second quarter of 2005 due to higher volumes and virtually stable prices (volumes 9%, prices -1%, portfolio -1%, currencies 1%). Earnings rose to an even greater extent. This was due in particular to improved earnings in the Styrenics division and continued strong earnings in the Polyurethanes division. ᅡᄊ Styrenics ᅡᄊ Sales were higher than in the same period of the previous year, in particular thanks to strong demand in Europe and Asia. Earnings increased significantly compared with the weak second quarter of 2005. Margins, however, remain unsatisfactory. Earnings were additionally impacted by the shutdown of the styrene plant in Ludwigshafen for maintenance. ᅡᄊ In order to expand our specialties business, we have opened a service center called designfabrik(R) in Ludwigshafen through which we support our customers in the early stages of product development. ᅡᄊ Performance Polymers ᅡᄊ Second-quarter sales and earnings were at the same level as in 2005. Sales volumes of engineering plastics developed positively in Asia and Europe. The business acquired from Leuna-Miramid in November 2005 contributed to this effect. ᅡᄊ Together with our partner Toray, we started operations at a world-scale production plant for polybutylene terephthalate (PBT) at our Verbund site in Kuantan, Malaysia, as scheduled in April 2006. The capacity utilization of the plant is already high as a result of the customer base that has been systematically established. ᅡᄊ Polyurethanes ᅡᄊ We increased sales significantly thanks to strong demand, in particular in North America. Earnings were increased slightly compared with the previous year's high level. ᅡᄊ In Caojing, China, we are currently starting operations as planned at the integrated isocyanate complex for MDI and TDI that we have built with Huntsman and Chinese partners. ᅡᄊ Together with DOW and Solvay we will start construction work on plants for hydrogen peroxide and propylene oxide (HPPO) in Antwerp, Belgium, in September 2006. ᅡᄊ Performance Products ᅡᄊ -- Higher sales due to increased volumes in all divisions ᅡᄊ -- Decline in earnings due to rise in raw material costs ᅡᄊ -- Acquisition of Degussa's construction chemicals business and resins producer Johnson Polymer Overview Performance Products 2nd Quarter Million EUR Change 2006 2005 in % Sales 2,197 2,098 5 Thereof Coatings 576 555 4 Functional Polymers 848 809 5 Performance Chemicals 773 734 5 EBITDA 298 366 (19) EBIT before special items 209 272 (23) EBIT before special items in percent of sales 9.5 13.0 - EBIT 209 282 (26) Assets 5,884 4,938 19 Overview Performance Products 1st Half Million EUR Change 2006 2005 in % Sales 4,344 4,006 8 Thereof Coatings 1,167 1,027 14 Functional Polymers 1,640 1,551 6 Performance Chemicals 1,537 1,428 8 EBITDA 627 670 (6) EBIT before special items 457 497 (8) EBIT before special items in percent of sales 10.5 12.4 - EBIT 456 506 (10) Assets - - - ᅡᄊ In the Performance Products segment, all divisions posted higher second-quarter sales compared with the same period of 2005 (volumes 2%, prices 1%, portfolio 2%). Rising raw material costs negatively affected margins, and earnings were lower than in the previous year's second quarter. ᅡᄊ The construction chemicals business acquired from Degussa will be reported in the new operating division Construction Chemicals with effect from July 1, 2006. Johnson Polymer, a producer of water-based resins for the coatings and printing inks industry that was acquired by BASF, will become part of the Performance Chemicals division as of July 1, 2006. ᅡᄊ The pigments business of Engelhard Corporation is reported in the Functional Polymers and Performance Chemicals divisions effective June 6, 2006. ᅡᄊ Coatings ᅡᄊ We increased sales of automotive coatings in Asia and North America. This growth occurred despite a slight decline in automotive production in North America. In Europe, sales of industrial coatings grew in particular. Earnings increased compared with the same period of 2005. ᅡᄊ Functional Polymers ᅡᄊ We improved sales of functional polymers thanks in particular to higher volumes of polymers for construction chemicals, adhesive raw materials and superabsorbents. Prices for acrylic monomers came increasingly under pressure due to additional capacities in Asia. The business environment in the paper industry is negatively affected by ongoing restructuring activities among our customers. Overall, earnings were lower than in the strong second quarter of 2005. ᅡᄊ The high level of prices in almost all product lines is making it increasingly difficult to pass on increased raw material costs promptly to our customers. ᅡᄊ Performance Chemicals ᅡᄊ We increased volumes and sales, in particular for performance chemicals for the automotive and oil industry. Further increases in raw material costs could be passed on to the market only to a limited extent. Thanks to strict cost management, earnings were at almost the same level as in the second quarter of 2005. ᅡᄊ Agricultural Products & Nutrition ᅡᄊ -- Difficult market environment for agricultural products ᅡᄊ -- Fine Chemicals division improves sales and earnings Overview Agricultural 2nd Quarter 1st Half Products Million EUR Change Change 2006 2005 in % 2006 2005 in % Sales 924 1,043 (11) 1,852 2,002 (7) EBITDA 217 351 (38) 550 683 (19) EBIT before special items 165 295 (44) 378 571 (34) EBIT before special items in percent of sales 17.9 28.3 - 20.4 28.5 - EBIT 164 291 (44) 444 575 (23) Assets 5,025 5,540 (9) - - - ᅡᄊ Sales were significantly lower than in the second quarter of 2005. This was due primarily to a decline in sales volumes and the divestiture of major parts of the North American generics business (volumes -6%, prices/currency -1%, portfolio -4%). ᅡᄊ In Europe, business was negatively affected by the late start to the season, which resulted in the application of smaller amounts of crop protection products. ᅡᄊ The agricultural economy in North America was impacted by higher operating costs and lower sales prices for agricultural produce. In addition, retailers reduced high inventory levels of fungicides that were established in 2005 in expectation of the rapid spread of Asian soybean rust. ᅡᄊ Earnings declined due to the drop in volumes. The further appreciation of the Brazilian real also contributed to the decline. ᅡᄊ On the basis of business to date, we do not expect to be able to match the previous year's level of sales and earnings. Overview Fine Chemicals 2nd Quarter 1st Half Million EUR Change Change 2006 2005 in % 2006 2005 in % Sales 465 422 10 913 817 12 EBITDA 96 12 . 136 62 119 EBIT before special items 18 7 157 29 27 7 EBIT before special items in percent of sales 3.9 1.7 - 3.2 3.3 - EBIT 63 (19) . 73 1 . Assets 1,760 1,326 33 - - - ᅡᄊ Sales increased thanks to the pharmaceutical contract manufacturing business that we acquired in October 2005 and the personal care business of Engelhard Corporation (volumes -1%, prices/currencies -2%, portfolio 13%). ᅡᄊ While growth rates remained high in the aroma chemicals business, sales of lysine and vitamin C continued to decline. ᅡᄊ EBIT before special items improved considerably compared with the same period of 2005. This was due in particular to the pharmaceutical contract manufacturing business. We are continuing with our cost reduction measures to combat the persisting pressure on margins for lysine, vitamin C and pharmaceutical active ingredients. ᅡᄊ EBIT contains special income of EUR 66 million resulting from the reduction of a fine imposed by the E.U. for anti-trust violations related to vitamin sales as well as special charges for restructuring measures. ᅡᄊ Oil & Gas ᅡᄊ -- Sales and earnings 50% up on previous year ᅡᄊ -- Considerably higher volumes in natural gas trading ᅡᄊ -- Achimgaz joint venture starts production wells Overview Oil & Gas 2nd Quarter Million EUR Change 2006 2005 in % Sales 2,481 1,650 50 Thereof Exploration and production 1,219 862 41 Natural gas trading 1,262 788 60 EBITDA 973 686 42 Thereof Exploration and production 835 609 37 Natural gas trading 138 77 79 EBIT before special items 868 579 50 Thereof Exploration and production 766 533 44 Natural gas trading 102 46 122 EBIT before special items in percent of sales 35.0 35.1 - Thereof Exploration and production 62.8 61.8 - Natural gas trading 8.1 5.8 - EBIT 868 579 50 Thereof Exploration and production 766 533 44 Natural gas trading 102 46 122 Assets 4,802 4,210 14 Thereof Exploration and production 2,232 2,063 8 Natural gas trading 2,570 2,147 20 Overview Oil & Gas 1st Half Million EUR Change 2006 2005 in % Sales 5,466 3,490 57 Thereof Exploration and production 2,300 1,555 48 Natural gas trading 3,166 1,935 64 EBITDA 1,926 1,276 51 Thereof Exploration and production 1,542 1,068 44 Natural gas trading 384 208 85 EBIT before special items 1,716 1,063 61 Thereof Exploration and production 1,404 919 53 Natural gas trading 312 144 117 EBIT before special items in percent of sales 31.4 30.5 - Thereof Exploration and production 61.0 59.1 - Natural gas trading 9.9 7.4 - EBIT 1,716 1,063 61 Thereof Exploration and production 1,404 919 53 Natural gas trading 312 144 117 Assets - - - Thereof Exploration and production - - - Natural gas trading - - - ᅡᄊ Persistently high crude oil prices and considerably higher sales volumes in the natural gas trading business sector (volumes 7%, prices/currencies 43%) led to a significant increase in sales and earnings compared with the strong second quarter of 2005. ᅡᄊ In the exploration and production business sector, sales and earnings increased significantly compared with the same period of the previous year as a result of persistently high crude oil prices. Compared with the second quarter of 2005, the average price of Brent crude rose by approximately $ 18/barrel to just under $ 70/barrel. In euro terms, this corresponds to an increase of EUR 14/barrel to EUR 55/barrel. ᅡᄊ The natural gas trading business sector again increased sales volumes considerably in both Germany and Western Europe. Sales prices were also raised compared with the previous year's second quarter. Significantly higher sales and earnings were posted as a result. ᅡᄊ Our Achimgaz joint venture with Gazprom started its first two production wells in the second quarter. The construction work on the remaining facilities is proceeding according to schedule. We therefore aim to start production around the end of the year. ᅡᄊ In April 2006, BASF and Gazprom signed an agreement on BASF's participation in the Yuzhno Russkoye gas field. The contracts are expected to be completed by the end of the year. ᅡᄊ Regions ᅡᄊ -- Europe: Strong increase in sales and earnings due to Oil & Gas segment ᅡᄊ -- North America: Sales growth due to acquisition of Engelhard Corporation; earnings impaired by plant turnarounds and weaker agricultural products business ᅡᄊ -- Asia: Additional growth from Verbund site in Nanjing, China Regions Sales Sales (location of company) (location of customer) Change Change Million EUR 2006 2005 in % 2006 2005 in % 2nd Quarter Europe 7,499 6,178 21 7,051 5,829 21 Thereof Germany 5,544 4,141 34 2,439 2,053 19 North America (NAFTA) 2,720 2,585 5 2,738 2,588 6 Asia Pacific 1,707 1,451 18 1,871 1,560 20 South America, Africa, Middle East 396 367 8 662 604 10 12,322 10,581 16 12,322 10,581 16 Regions EBIT before special items Change Million EUR 2006 2005 in % 2nd Quarter Europe 1,513 1,199 26 Thereof Germany 1,125 772 46 North America (NAFTA) 263 351 (25) Asia Pacific 125 95 32 South America, Africa, Middle East 9 12 (25) 1,910 1,657 15 1st Half Europe 15,285 12,280 24 14,466 11,680 24 Thereof Germany 11,301 8,451 34 5,411 4,254 27 North America (NAFTA) 5,357 4,850 10 5,355 4,831 11 Asia Pacific 3,355 2,750 22 3,648 2,926 25 South America, Africa, Middle East 840 784 7 1,368 1,227 11 24,837 20,664 20 24,837 20,664 20 1st Half Europe 2,933 2,333 26 Thereof Germany 2,140 1,514 41 North America (NAFTA) 561 622 (10) Asia Pacific 240 182 32 South America, Africa, Middle East 41 83 (51) 3,775 3,220 17 ᅡᄊ Sales by location of company in Europe rose by 21% in the second quarter of 2006. EBIT before special items climbed 26% to EUR 1,513 million. This strong improvement was due above all to the Oil & Gas segment. ᅡᄊ Companies in North America increased sales in dollar and euro terms by 5%. This sales growth was due to the acquisition of Engelhard Corporation and higher sales volumes in the Polyurethanes division. EBIT before special items declined by 25% to EUR 263 million. The planned plant turnarounds and a decline in sales of fungicides negatively impacted earnings in the Petrochemicals and Agricultural Products divisions, respectively. ᅡᄊ Sales by location of company in Asia Pacific increased by 17% in local currency terms and by 18% in euro terms. EBIT before special items rose by 32% to EUR 125 million. All segments contributed to the sales growth, in particular the Chemicals segment as a result of the Verbund site in Nanjing, China, which started operations in June 2005. ᅡᄊ In South America, Africa, Middle East sales by location of company rose 4% in local currencies and 8% in euro terms. EBIT before special items was negatively impacted by higher costs due to the further significant appreciation of the Brazilian real. Higher earnings from gas production in Argentina were unable to offset this effect. ᅡᄊ Overview of Other Topics ᅡᄊ Research and development ᅡᄊ In the first half of 2006, we increased spending on research and development by 15% as planned to EUR 583 million. Of the amount spent in the first six months of this year, approximately 80% fell under the operational responsibility of the operating divisions. Corporate research costs accounted for the remaining 20%. ᅡᄊ We have expanded our global network of centers of excellence in the key areas of catalysis and nanotechnology. Through the acquisition of Engelhard Corporation we have significantly expanded our research capacity in process and environmental catalysis and are now a world leader in this area. Together with the University of Heidelberg, we plan to establish a joint laboratory for homogeneous catalysis by fall 2006. To strengthen our research network in Asia, we opened a research laboratory for nanostructured surfaces in Singapore at the end of April. ᅡᄊ Employees ᅡᄊ The number of BASF Group employees rose by 5,849 compared with the end of 2005 to 86,794 as of June 30, 2006. ᅡᄊ This increase was due in particular to the acquisition of Engelhard Corporation. Simultaneously, employees left BASF as a result of continued measures to increase efficiency. ᅡᄊ In Europe, the number of employees increased by 0.5% in the first six months of 2006. The greatest increase of 44.5% was in North America (NAFTA) as a result of the acquistion of Engelhard Corporation. Employee numbers increased by 11% in Asia Pacific and by 2.5% in South America, Africa, Middle East. Employees by region June 30, 2006 Dec. 31, 2005 Europe 56,904 56,614 North America (NAFTA) 14,202 9,826 Asia Pacific 10,733 9,669 South America, Africa, Middle East 4,955 4,836 86,794 80,945 ᅡᄊ Compared with the first half of 2005, personnel costs rose by 5.7% to EUR 2.8 billion in the same period of 2006. ᅡᄊ Consolidated Statements of Income 2nd Quarter Million EUR Change 2006 2005 in % Sales 12,322 10,581 16.5 Cost of sales 8,658 7,083 22.2 Gross profit on sales 3,664 3,498 4.7 Selling expenses 1,143 1,085 5.3 General and administrative expenses 207 193 7.3 Research and development expenses 278 256 8.6 Other operating income 168 56 200.0 Other operating expenses 407 433 (6.0) Income from operations 1,797 1,587 13.2 (Expenses)/income from financial assets 30 42 (28.6) Interest result (55) (51) (7.8) Other financial result 48 (73) . Financial result 23 (82) . Income before taxes and minority interests 1,820 1,505 20.9 Income taxes 866 697 24.2 Net income before minority interests 954 808 18.1 Minority interests 34 30 13.3 Net income 920 778 18.3 Earnings per share (EUR) Number of shares, in million (weighted) 506 527 (4.0) Dilutive effect - - - Earnings per share (EUR) Undiluted 1.82 1.48 23.0 Diluted 1.82 1.48 23.0 2nd Quarter 1st Half Million EUR Change 2006 2005 in % Sales 24,837 20,664 20.2 Cost of sales 17,546 13,928 26.0 Gross profit on sales 7,291 6,736 8.2 Selling expenses 2,246 2,089 7.5 General and administrative expenses 393 357 10.1 Research and development expenses 583 506 15.2 Other operating income 418 182 129.7 Other operating expenses 841 880 (4.4) Income from operations 3,646 3,086 18.1 (Expenses)/income from financial assets 45 113 (60.2) Interest result (103) (91) (13.2) Other financial result 102 (59) . Financial result 44 (37) . Income before taxes and minority interests 3,690 3,049 21.0 Income taxes 1,719 1,319 30.3 Net income before minority interests 1,971 1,730 13.9 Minority interests 101 91 11.0 Net income 1,870 1,639 14.1 Earnings per share (EUR) Number of shares, in million (weighted) 507 532 (4.7) Dilutive effect - - - Earnings per share (EUR) Undiluted 3.69 3.08 19.8 Diluted 3.69 3.08 19.8 ᅡᄊ Consolidated Balance Sheets Million EUR June 30, June 30, Change Dec. Change 2006 2005 in % 31, in % 2005 Long-term assets Intangible assets 6,938 3,773 83.9 3,720 86.5 Property, plant and equipment 14,782 13,709 7.8 13,987 5.7 Investments accounted for using the equity method 261 1,168 (77.7) 244 7.0 Other financial assets 1,099 974 12.8 813 35.2 Deferred taxes 899 1,425 (36.9) 1,255 (28.4) Other long-term assets 557 362 53.9 524 6.3 24,536 21,411 14.6 20,543 19.4 Short-term assets Inventories 6,122 5,331 14.8 5,430 12.7 Accounts receivable, trade 7,825 6,815 14.8 7,020 11.5 Other receivables and miscellaneous short-term assets 5,492 1,869 193.8 1,586 246.3 Liquid funds 496 3,156 (84.3) 1,091 (54.5) 19,935 17,171 16.1 15,127 31.8 Total assets 44,471 38,582 15.3 35,670 24.7 Million EUR June 30, June Change Dec. Change 2006 30, in % 31, in % 2005 2005 Stockholders' equity Subscribed capital 1,289 1,342 (3.9) 1,317 (2.1) Capital surplus 3,130 3,072 1.9 3,100 1.0 Retained earnings 12,337 11,244 9.7 11,928 3.4 Other comprehensive income 356 416 (14.4) 696 (48.9) Minority interests 476 435 9.4 482 (1.2) 17,588 16,509 6.5 17,523 0.4 Long-term liabilities Provisions for pensions and similar obligations 1,193 4,837 (75.3) 1,547 (22.9) Other provisions 2,749 2,463 11.6 2,791 (1.5) Deferred taxes 1,203 788 52.7 699 72.1 Financial indebtedness 5,920 3,496 69.3 3,682 60.8 Other long-term liabilities 1,323 1,014 30.5 1,043 26.8 12,388 12,598 (1.7) 9,762 26.9 Short-term liabilities Accounts payable, trade 3,215 2,369 35.7 2,777 15.8 Provisions 2,856 2,759 3.5 2,763 3.4 Tax liabilities 1,178 1,078 9.3 887 32.8 Financial indebtedness 5,037 1,510 233.6 259 . Other short-term liabilities 2,209 1,759 25.6 1,699 30.0 14,495 9,475 53.0 8,385 72.9 Total stockholders' equity and liabilities 44,471 38,582 15.3 35,670 24.7 ᅡᄊ Consolidated Statements of Cash Flows 1st Half Million EUR 2006 2005 Net income 1,870 1,639 Depreciation and amortization of long-term assets 1,129 1,082 Changes in net working capital (611) (573) Miscellaneous items (180) (67) Cash provided by operating activities 2,208 2,081 Payments related to tangible and intangible assets (983) (875) Acquisitions/divestitures (6,987) (51) Financial investments and other items 268 13 Cash using in investing activities (7,702) (913) Proceeds from capital increases/repayments (663) (858) Changes in financial liabilities 6,772 1,494 Dividends (1,124) (942) Cash provided by/used in financing activities 4,985 (306) Net changes in cash and cash equivalents (509) 862 Cash and cash equivalents as of beginning of year and other changes 901 2,126 Cash and cash equivalents 392 2,988 Marketable securities 104 168 Liquid funds 496 3,156 ᅡᄊ Cash provided by operating activities was EUR 2,208 million in the first half of 2006 compared with EUR 2,081 million in the same period of 2005. The increase was primarily due to the rise in earnings. ᅡᄊ Cash used in investing activities was EUR 7,702 million compared with EUR 913 million in the same period of the previous year. Approximately EUR 7 billion was spent in the second quarter on the acquisitions described under "Significant Events and Outlook." ᅡᄊ In cash provided by financing activities, share buybacks and dividend payments led to a cash outflow of EUR 1,805 million. In the first six months of 2006, we bought back 10.8 million shares for EUR 681 million or an average of EUR 63.04 per share. ᅡᄊ At EUR 10.957 million, financial indebtedness was EUR 7,016 million higher than on December 31, 2005. ᅡᄊ On April 11, BASF Aktiengesellschaft issued a euro benchmark bond with a volume of EUR 1 billion and a maturity of five years. The coupon is 4.0% per year. In addition, on June 22, BASF Aktiengesellschaft issued a three-year floating rate note and a 10-year euro fixed-rate benchmark bond, each with a nominal volume of EUR 500 million. The coupon of the 10-year bond is 4.5 percent per year. In addition, commercial paper equivalent to approximately EUR 4.4 billion was outstanding as of June 30, 2006. ᅡᄊ As of June 30, 2006, nebt debt was EUR 10,461 million and the equity ratio was 39.5%. ᅡᄊ Consolidated Statements of Recognized Income and Expense Income and expense items 1st Half Million EUR 2006 2005 Net income before minority interests 1,971 1,730 Fair value changes in available-for-sale securities (2) (22) Cash-flow hedges 23 (3) Change in foreign currency translation adjustments (360) 501 Actuarial gains/losses from pensions and other obligations 368 (874) Deferred taxes (132) 340 Minority interests (15) 23 Total income and expenses recognized in equity (118) (35) Total income and expense for the period 1,853 1,695 Thereof BASF 1,767 1,581 Thereof minority interests 86 114 Development Retained Other comprehensive income of income earnings and expense recognized directly in equity Actuarial Foreign Fair value Cash- Total of gains/losses currency changes in flow other compr- translation available- hedges ehensive adjustments for income sale securities Million EUR As of January 1, 2006 (894) 475 258 (37) 696 Additions 368 - - 23 23 Releases - (360) (2) - (362) Deferred taxes (131) 7 1 (9) (1) As of June 30, 2006 (657) 122 257 (23) 356 As of January 1, 2005 (234) (226) 193 (27) (60) Additions - 501 - - 501 Releases (874) - (22) (3) (25) Deferred taxes 340 (10) 8 2 - As of June 30, 2005 (768) 265 179 (28) 416 Development of income Total and expense recognized income and directly in equity expense recognized directly in equity Million EUR As of January 1, 2006 (198) Additions 391 Releases (362) Deferred taxes (132) As of June 30, 2006 (301) As of January 1, 2005 (294) Additions 501 Releases (899) Deferred taxes 340 As of June 30, 2005 (352) ᅡᄊ Consolidated Statements of Stockholders' Equity January - June 2006 Number of Subscribed Capital Retained subscribed capital surplus earnings shares outstanding Million EUR As of January 1, 2006 514,379,000 1,317 3,100 11,928 Share buy-back and cancellation of own shares including own shares intended to be cancelled (10,799,000) (28) 30 (683) Capital injection by minority interests - - - - Dividends paid - - - (1,014) Net income - - - 1,870 Income and expense recognized directly in equity - - - 237 Change in scope of consolidation and other changes - - - (1) As of June 30, 2006 503,580,000 1,289 3,130 12,337 January - June 2006 Other com- Minority Stock- prehensive interests holders' income equity Million EUR As of January 1, 2006 696 482 17,523 Share buy-back and cancellation of own shares including own shares intended to be cancelled - - (681) Capital injection by minority interests - 18 18 Dividends paid - (110) (1,124) Net income - 101 1,971 Income and expense recognized directly in equity (340) (15) 118 Change in scope of consolidation and other changes - - 1 As of June 30, 2006 356 476 17,588 January - June 2005 Number of Subscribed Capital Retained subscribed capital surplus earnings shares outstanding Million EUR As of January 1, 2005 540,440,410 1,384 3,028 11,923 Share buy-back and cancellation of own shares including own shares intended to be cancelled (16,402,229) (42) 44 (869) Capital distribution to minority interests - - - - Dividends paid - - - (904) Net income - - - 1,639 Income and expense recognized directly in equity - - - (534) Change in scope of consolidation and other changes - - - (11) As of June 30, 2005 524,038,181 1,342 3,072 11,244 January - June 2005 Other com- Minority Stock- prehensive interests holders' income equity Million EUR As of January 1, 2005 (60) 328 16,603 Share buy-back and cancellation of own shares including own shares intended to be cancelled - - (867) Capital distribution to minority interests - 10 10 Dividends paid - (38) (942) Net income - 91 1,730 Income and expense recognized directly in equity 476 23 (35) Change in scope of consolidation and other changes - 21 10 As of June 30, 2005 416 435 16,509 ᅡᄊ Segment Reporting 2nd Quarter Sales EBITDA Million EUR 2006 2005 in % 2006 2005 in % Chemicals 2,443 2,007 21.7 409 477 (14.3) Plastics 3,168 2,924 8.3 442 400 10.5 Performance Products 2,197 2,098 4.7 298 366 (18.6) Agricultural Products & Nutrition 1,389 1,465 (5.2) 313 363 (13.8) Thereof Agricultural Products 924 1,043 (11.4) 217 351 (38.2) Fine Chemicals 465 422 10.2 96 12 . Oil & Gas 2,481 1,650 50.4 973 686 41.8 Other (a) 644 437 47.4 (61) (143) 57.3 12,322 10,581 16.5 2,374 2,149 10.5 2nd Quarter Income from Income from operations (EBIT) operations (EBIT) before special items Million EUR 2006 2005 in % 2006 2005 in % Chemicals 351 415 (15.4) 263 345 (23.8) Plastics 315 274 15.0 314 280 12.1 Performance Products 209 272 (23.2) 209 282 (25.9) Agricultural Products & Nutrition 183 302 (39.4) 227 272 (16.5) Thereof Agricultural Products 165 295 (44.1) 164 291 (43.6) Fine Chemicals 18 7 157.1 63 (19) . Oil & Gas 868 579 49.9 868 579 49.9 Other (a) (16) (185) 91.4 (84) (171) 50.9 1.910 1.657 15.3 1,797 1,587 13.2 2nd Quarter Research and Assets (b) development expenses Chemicals 35 28 25.0 10,903 6,026 80.9 Plastics 32 35 (8.6) 6,867 6,591 4.2 Performance Products 59 47 25.5 5,884 4,938 19.2 Agricultural Products & Nutrition 99 92 7.6 6,785 6,866 (1.2) Thereof Agricultural Products 83 75 10.7 5,025 5,540 (9.3) Fine Chemicals 16 17 (5.9) 1,760 1,326 32.7 Oil & Gas - - - 4,802 4,210 14.1 Other (a) 53 54 (1.9) 9,230 9,951 (7.2) 278 256 8.6 44,471 38,582 15.3 2nd Quarter Additions to Amortization and fixed assets (c) depreciation (c) Chemicals 3,233 369 . 146 132 10.6 Plastics 116 120 (3.3) 128 120 6.7 Performance Products 921 134 . 89 84 6.0 Agricultural Products & Nutrition 282 33 . 86 91 (5.5) Thereof Agricultural Products 37 14 164.3 53 60 (11.7) Fine Chemicals 245 19 . 33 31 6.5 Oil & Gas 115 156 (26.3) 105 107 (1.9) Other (a) 290 38 . 23 28 (17.9) 4,957 850 483.2 577 562 2.7 ᅡᄊ Segment Reporting 1st Half Sales EBITDA Million EUR 2006 2005 in % 2006 2005 in % Chemicals 4,682 3,829 22.3 861 1,021 (15.7) Plastics 6,259 5,724 9.3 898 780 15.1 Performance Products 4,344 4,006 8.4 627 670 (6.4) Agricultural Products & Nutrition 2,765 2,819 (1.9) 686 745 (7.9) Thereof Agricultural Products 1,852 2,002 (7.5) 550 683 (19.5) Fine Chemicals 913 817 11.8 136 62 119.4 Oil & Gas 5,466 3,490 56.6 1,926 1,276 50.9 Other (a) 1,321 796 66.0 (223) (324) 31.2 24,837 20,664 20.2 4,775 4,168 14.6 1st Half Income from Income from operations (EBIT) operations (EBIT) before special items Million EUR 2006 2005 in % 2006 2005 in % Chemicals 668 841 (20.6) 580 771 (24.8) Plastics 647 543 19.2 645 548 17.7 Performance Products 457 497 (8.0) 456 506 (9.9) Agricultural Products & Nutrition 407 598 (31.9) 517 576 (10.2) Thereof Agricultural Products 378 571 (33.8) 444 575 (22.8) Fine Chemicals 29 27 7.4 73 1 . Oil & Gas 1,716 1,063 61.4 1,716 1,063 61.4 Other (a) (120) (322) 62.7 (268) (378) 29.1 3,775 3,220 17.2 3,646 3,086 18.1 1st Half Research and Assets (b) development expenses Chemicals 66 55 20.0 10,903 6,026 80.9 Plastics 73 69 5.8 6,867 6,591 4.2 Performance Products 119 97 22.7 5,884 4,938 19.2 Agricultural Products & Nutrition 196 178 10.1 6,785 6,866 (1.2) Thereof Agricultural Products 163 143 14.0 5,025 5,540 (9.3) Fine Chemicals 33 35 (5.7) 1,760 1,326 32.7 Oil & Gas - 1 - 4,802 4,210 14.1 Other (a) 129 106 21.7 9,230 9,951 (7.2) 583 506 15.2 44,471 38,582 15.3 1st Half Additions to Amortization and fixed assets (c) depreciation (c) Chemicals 3,395 457 . 281 250 12.4 Plastics 334 202 65.3 253 232 9.1 Performance Products 1,002 188 433.0 171 164 4.3 Agricultural Products & Nutrition 319 64 398.4 169 169 0.0 Thereof Agricultural Products 52 26 100.0 106 108 (1.9) Fine Chemicals 267 38 . 63 61 3.3 Oil & Gas 190 250 (24.0) 210 213 (1.4) Other (a) 317 51 . 45 54 (16.7) 5,557 1,212 358.5 1,129 1,082 4.3 ᅡᄊ (a) "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, from hedging of forecasted sales as well as from currency positions that are macro-hedged (EUR 38 million in the second quarter (2005: EUR (94) million) and EUR 93 million in the first half (2005: EUR (139) million)). ᅡᄊ (b) The assets of "Other" includes the assets of the fertilizers business and other businesses as well as assets that are not allocated to the segments (financial assets, liquid funds, financial receivables, deferred taxes; first half 2006: EUR 7,189 million, first half 2005: EUR 8,180 million). ᅡᄊ (c) Intangible and tangible fixed assets ᅡᄊ Explanations to the Interim Financial Statements ᅡᄊ 1. Basis of presentation ᅡᄊ The Consolidated Financial Statements of BASF Group for the year ended December 31, 2005 were prepared according to the International Financial Reporting Standards (IFRS) valid as of the balance sheet date. The current interim financial statements were prepared using the same accounting policies. BASF's Financial Report for fiscal 2005 is available on the Internet at corporate.basf.com/financial-report. ᅡᄊ The previous year's figures have been adjusted as follows in accordance with the changes made effective December 31, 2005: Expenses in the Oil & Gas segment related to exploration for oil and gas deposits and to dry holes are now recorded as other operating expenses rather than as research and development expenses. In association with the change to IAS 19, actuarial gains and losses from the valuation of pension obligations are recognized against retained earnings in the reporting period in which they occur. ᅡᄊ Compared with the end of 2005, the assumptions used to determine expenses for pension benefit were changed as follows with effect from June 30, 2006: The interest rate was increased from 4.25% to 4.75% and the expected pension increase from 1.50% to 1.75%. ᅡᄊ The interim financial statements have not been audited. ᅡᄊ 2. Scope of consolidation ᅡᄊ The Consolidated Financial Statements include BASF Aktiengesellschaft, the parent company, as well as all material subsidaries on a fully consolidated basis. Material jointly operated companies are proportionally consolidated. The number of fully and proportionally consolidated companies has developed as follows: 2006 2005 As of January 1 180 160 Thereof proportionally consolidated 15 12 First-time consolidations 91 28 Thereof proportionally consolidated - 4 Thereof changes in the consolidation method - (1) Deconsolidations 4 8 Thereof proportionally consolidated - - As of June 30/December 31 267 180 Thereof proportionally consolidated 15 15 ᅡᄊ First-time consolidations since January 1, 2006 comprised: ᅡᄊ -- A total of 79 companies associated with the acquisition of Engelhard Corporation, United States; ᅡᄊ -- The biotechnology company CropDesign N.V., Belgium, acquired in May; ᅡᄊ -- BASF Services Europe GmbH, Berlin, which performs finance and human resources services for BASF companies in Europe; and ᅡᄊ -- Ten previously unconsolidated companies with headquarters in Germany, Australia, China, Malta and Switzerland due to their increased importance. ᅡᄊ Four companies have been deconsolidated since the beginning of 2006 due to their decreased significance or merger with other BASF companies. ᅡᄊ Companies accounted for using the equity method were as follows: June 30, Dec. 31, 2006 2005 Affiliated companies 11 11 Joint ventures 2 2 Other associated companies 3 3 16 16 ᅡᄊ Companies acquired in association with the purchase of Degussa's construction chemicals business will be included in BASF's Consolidated Financial Statements as of July 1, 2006. Companies acquired in association with the purchase of Johnson Polymer will also be consolidated as of July 1, 2006. ᅡᄊ 3. Acquisitions/divestitures Effect of acquisitions and divestitures on BASF Group assets June 30, 2006 Million EUR % Long-term assets 4,818 46.4 Thereof goodwill 2,089 20.1 Intangible assets 1,214 11.7 Property, plant and equipment 1,260 12.1 Short-term assets 5,559 53.6 Thereof Inventories 655 6.3 Accounts receivable, trade 484 4.7 Other receivables and miscellaneous short-term assets 4,366 42.1 Assets 10,377 100.0 ᅡᄊ The total purchase price for Degussa's construction chemicals business and for Johnson Polymer of EUR 3,048 million is reported under "Other receivables" as of June 30, 2006. ᅡᄊ The provisional purchase price allocation for Engelhard Corporation is included in the above table under the respective balance sheet items. The activities acquired from Engelhard Corporation increased sales by EUR 288 million in the second quarter of 2006. -- Important Dates -- November 2, 2006 Interim Report Third Quarter 2006 -- February 22, 2007 Annual Results 2006 -- April 26, 2007 Interim Report First Quarter 2007 and Annual Meeting -- August 1, 2007 Interim Report Second Quarter 2007 -- October 30, 2007 -- Interim Report Third Quarter 2007 Forward-looking statements ᅡᄊ 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 Annual 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. ᅡᄊ You can find this and other publications from BASF on the Internet at corporate.basf.com. You can also order the reports -- by telephone: +49 621 60-91827 -- by fax: +49 621 60-20162 -- on the Internet: corporate.basf.com/mediaorders CONTACT: BASF Aktiengesellschaft, Ludwigshafen Corporate Media Relations Michael Grabicki, +49 621 60-99938 Fax +49 621 60-92693 or Investor Relations Magdalena Moll, +49 621 60-48230 Fax +49 621 60-22500 or General inquiries, +49 621 60-0 Fax +49 621 60-42525 Internet: corporate.basf.com

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Bass Oil set to drill 'a low-risk and very high-impact well' with Bunian 5

Bass Oil Ltd (ASX:BAS) managing director Tino Guglielmo updates Proactive Investors on increased reserves, increasing production, and expanded criteria in the search for additional Indonesian oil assets. Guglielmo says, "The Buyian 5 well is going to be at least as good as the Bunyan 3...

on 11/3/19

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