Corporate Report 2003

Segments

Change in %

3.6

0.1

3.9

0.6

(17.9)

(39.5)

(37.7)

(19.6)

0.00

(2.6)

(2.5)

2002

32,216

5,105

2,881

2,641

2,641

1,504

2.60

2.96

1.40

1,135

89,389

2003

33,361

5,110

2,993

2,658

2,168

910

1.62

2.38

1.40

1,105

87,159

Million €

Sales

Income from operations before interest, taxes, depreciationand amortization (EBITDA)

Income from operations (EBIT) before special items

Income from operations (EBIT)

Income before taxes and minority interests

Net income

Earnings per share (€)

Earnings per share in accordance with U.S. GAAP (€)

Dividend per share (€)

Research and development expenses

Number of employees (as of December 31, 2003)

Key data BASF Group

Sales by segmentMillion €

Chemicals 5,752 17.2%

Plastics 8,787 26.3%

Performance Products 7,633 22.9%

Agricultural Products & Nutrition 5,021 15.1%

Oil & Gas 4,791 14.4%

Other 1,377 4.1%

33,361 100.0%

1

3

2

4

5

6

4

5 61

2

3

Sales by region (location of customer)Million €

Europe 19,120 57.3%Thereof Germany 7,073 21.2%

North America (NAFTA) 7,163 21.5%

South America 1,765 5.3%

Asia, Pacific Area, Africa 5,313 15.9%

33,361 100.0%

1

3

2

4

1 2

3

4

We have further developed BASF’s reporting: This Corporate Report combines our sustain-ability reporting in a single publication. The new report provides information on all threedimensions of sustainable development and thus replaces the three individual reports wehave published to date. You can find additional information and data on the Internet. We are orienting our reporting to the recommendations of the Global Reporting Initiative(GRI), and we are actively involved in the discussions to further develop the initiative.

Our data and calculations are also based on international standards. In some areas,direct comparison of individual data is made difficult due to portfolio changes, new plantstartups and improvements to our data collection method. This is stated in the text wherethis is the case.

Data on economic performanceThe economic data in this report are based on the Consolidated Financial Statements of the BASF Group and the Management’s Analysis published in BASF’s Financial Report. The Consolidated Financial Statements were prepared using the accounting principles ofthe German Commercial Code (HGB) and the German Stock Corporation Act. The account-ing principles conform to generally accepted accounting principles in the United States(U.S. GAAP) to the extent permissible under the German Commercial Code. Remaining dif-ferences related to net income and stockholders’ equity are reconciled with U.S. GAAP.

Environmental and safety dataOur environmental and safety data are based closely on the recommendations of the Euro-pean Chemical Industry Council (CEFIC). In the area of emissions and energy, we coverapproximately 98 percent of all emissions from our production sites worldwide. Emissionsfrom joint ventures are reported according to the stake held by BASF. Since 2002, we alsoinclude emissions resulting from exploration for crude oil and natural gas. Data on occupa-tional accidents are collected worldwide, not only at production sites but also at non-pro-duction sites such as sales offices and administrative headquarters. The number of acci-dents at sites operated by joint ventures are recorded and reported in full.

Data on social responsibilityOur data on social responsibility are based on the Global Reporting Initiative. Unless other-wise stated, the data provided relate to all consolidated Group companies included in theFinancial Report. As of December 31, 2003, the data cover 99.6 percent of BASF Groupemployees (2002: 99.9 percent).

About this Report

2003

0.000

000

000

000

000

000

0.000

000

000

000

000

0

0.000

000

000

000

000

0

0.000

000

000

000 0

0.000

000

000

Segments

2002

5,317

676

635

695

2,902

1,720

8,477

593

582

3,387

2,270

2,820

8,014

653

646

3,343

2,137

2,534

4,924

217

55

2,954 1,970

4,199

1,210

1,210

2003

5,752

500

393

738

3,264

1,750

8,787

363

296

3,626

2,239

2,922

7,633

568

478

3,147

2,015

2,471

5,021

427

359

3,176 1,845

4,791

1,365

1,365

Change in %

8.2

(26.0)

(38.1)

In %

12.8

56.8

30.4

3.7

(38.8)

(49.1)

In %

41.3

25.5

33.2

(4.8)

(13.0)

(26.0)

In %

41.2

26.4

32.4

2.0

96.8

552.7

In %

63.3 36.7

14.1

12.8

12.8

The heart of our Verbund

The synergy potential of our Verbund ensures our competitiveness in pro-

ducing organic and inorganic basic chemicals and intermediates. Integrated

production sites, innovative processes and the advantages of modern large-

scale plants help us achieve our goal of cost leadership. We participate in

the major growth markets by constructing new Verbund sites. We enhance

our portfolio with higher-value products through innovation and acquisi-

tions.

Focusing on strengths

BASF is a leading supplier of plastics. For standard plastics, we strive to

achieve a portfolio with focused product lines, concentrate our production

at a few sites and develop effective marketing processes. In our business

with specialties, we offer a wide range of products and services. In close

cooperation with our customers, we constantly extend this range and add

new applications.

Close cooperation with customers

In the Performance Products segment, we concentrate our activities on in-

novative business areas and products toward the ends of our value-adding

chains. Our success is based on new products, system solutions and applica-

tions that we develop in close cooperation with our customers. Our keys to

success are our powerful research and development organization and our

ability to solve our partners’ problems quickly, flexibly and in line with their

needs.

Strengthening our competitiveness

We have strengthened the competitiveness of our Agricultural Products &

Nutrition segment through active portfolio management. We are expanding

our position utilizing new active ingredients and our presence in the major

agricultural markets. We offer our customers in the nutrition, pharmaceuti-

cals and cosmetics industries a broad range of high-value fine chemicals.

Innovative solutions strengthen our good position. Our research activities

in plant biotechnology focus on solutions for effective agriculture, healthier

nutrition and plants to make products more efficiently.

Expertise and regional focus

In exploration and production, we benefit from our many years of experi-

ence and our focus on areas that are rich in oil and gas in Europe, North

Africa, South America as well as Russia and the Caspian region. In natural

gas trading, we are making use of the growth opportunities that are arising

from the liberalization of the European gas markets. The earnings contribu-

tions from our oil and gas business act as a bridge over the economic

troughs.

BASF’s segments

Million €

Chemicals

Sales

Income from operations before special items

Income from operations

Sales by division

Inorganics

Petrochemicals

Intermediates

Plastics

Sales

Income from operations before special items

Income from operations

Sales by division

Styrenics

Performance Polymers

Polyurethanes

Performance Products

Sales

Income from operations before special items

Income from operations

Sales by division

Performance Chemicals

Coatings

Functional Polymers

Agricultural Products & Nutrition

Sales

Income from operations before special items

Income from operations

Sales by division

Agricultural ProductsFine Chemicals

Oil & Gas

Sales

Income from operations before special items

Income from operations

BASF 2003 | 1

BASF is the world’s leading chemical company. Our goal is to

grow profitably and further increase the value of our company.

We help our customers to be more successful through intelligent

system solutions and high-quality products. Our portfolio ranges

from chemicals, plastics, performance products, agricultural

products and fine chemicals to crude oil and natural gas.

Through new technologies we can tap into additional market

opportunities. We conduct our business in accordance with the

principles of sustainable development.

2 | BASF 2003

Milestones 2003

The Company

2 Milestones 2003

4 Letter from the Chairman of the

Board of Executive Directors

6 Board of Executive Directors

8 Strategy

11 Goals

12 Corporate Governance

14 Principles for our Activities

Economic Results and

Perspectives

18 BASF Shares

20 Finance

22 Chemicals

24 Plastics

26 Performance Products

28 Agricultural Products &

Nutrition

30 Oil & Gas

32 Research and Development

34 Mobility thanks to Solutions

from the Chemical Industry

38 Eco-efficiency Analysis

Environmental Protection

and Safety

41 Responsible Care®

43 Environmental Protection

49 Product Stewardship

50 Occupational Safety

51 Distribution Safety

52 Supply Chain

Social Responsibility

55 Sustainability Management

57 Value Added

58 Employees

62 Community

65 Health Protection

66 Dialogue

67 Verification

68 Glossary and Index

GRI Index

Contents

July 2003:

Cornerstone laying cere-

mony in Caojing, China.

BASF 2003 | 3

Milestones 2003

Q1 Q2 Q3 Q401.2003 02.2003 03.2003 04.2003 05.2003 06.2003 07.2003 08.2003 09.2003 10.2003 11.2003 12.2003

January� A new logistics center starts op-erations at the Ludwigshafen site.As the largest chemicals terminalfor the optimized shipping of pack-aged products in Europe, it re-places about 50 smaller ware-houses and spares the region25,000 truck journeys every year. � BASF is one of the first compa-nies in Germany to appoint a ChiefCompliance Officer. He is respon-sible for coordinating and develop-ing BASF’s Compliance Programworldwide, which obliges all em-ployees to behave in an upright,legally abiding manner.

February� BASF is the world’s most ad-mired chemical company: In a pollby the U.S. business magazineFortune, more than 10,000 ex-ecutives and managers from 345companies vote BASF Number One.

March� BASF strengthens its portfolio bypurchasing a range of crop protec-tion products from Bayer CropSci-ence. The acquisition includes theinsecticide fipronil as well as se-lected seed treatment fungicides.

April� A systematic benchmarkingmethod is introduced at the 19largest production sites in theBASF Group. It aims to identify reliably the sites’ strengths andweaknesses and improve theircompetitiveness.

May� Dr. Jürgen Hambrecht becomesthe new Chairman of the Board ofExecutive Directors of BASF Ak-tiengesellschaft. After 13 years asChairman, his predecessor, Dr.Jürgen F. Strube, becomes Chair-man of BASF’s Supervisory Board. � BASF acquires the engineeringplastics business of Honeywell,United States. In turn, BASFsells its nylon fibers business toHoneywell.

June� BASF issues a Euro BenchmarkBond with a volume of €1 billion.The bond has a term of sevenyears and offers an annual interestrate of 3.5 percent. As a result, wehave secured financing at favor-able rates.

July� Gazprom, Russian Federation –the world’s largest producer of nat-ural gas – and BASF subsidiaryWintershall establish the Achim-gaz joint venture to develop gasdeposits in the Urengoy field inwestern Siberia.� For the first time, BASF an-nounces long-term, globally validgoals for environmental protectionand safety and reports on goal attainment. � In Caojing, China, BASF lays thecornerstone for the world’s largestintegrated production facility forPolyTHF®. The technology de-veloped by BASF is scheduled tocome on stream in 2005.

August� A new world-scale plant for theproduction of high-purity metha-nesulfonic acid starts operations atthe Ludwigshafen site. The prod-uct, which is primarily used in theelectronics industry, is manufac-tured using a novel process developed by BASF that producesalmost no emissions.

September� BASF joins Transparency Interna-tional, underlining its commitmentto high ethical standards and abusiness policy that does not tol-erate corruption in any form. � BASF acquires Callery Chemicalfrom the Mine Safety AppliancesCompany, United States. Calleryproduces important inorganic spe-cialties for the pharmaceutical in-dustry.

� Groundbreaking ceremony fornew combined heat and powerplant (CHP): The plant will supplythe Ludwigshafen site from theend of 2005 and help reduce CO2emissions by 500,000 metric tonsper year from 2006 onward.� BASF shares are included in theDow Jones Sustainability IndexWorld (DJSI World) for the thirdyear in succession.

October� BASF announces its decision tocontinue restructuring its Styrenicsdivision by further streamlining theproduct range. In Ludwigshafen,the company plans to stop pro-ducing polystyrene compoundsand mothball a Styrolux® plant bymid-2004.

November� Positive interim results for theLudwigshafen Site Project. Sav-ings of €100 million are achieved inthe first year alone. The goal is topermanently reduce costs at theLudwigshafen site by €450 millionby 2005.

December� Chairman of the Board of Execu-tive Directors, Dr. Jürgen Ham-brecht, presents the company’srenewed strategy BASF 2015.Together with a new logo, BASFunderlines its position as theworld’s leading chemical company– The Chemical Company.

4 | BASF 2003

In the past year, BASF has shown once again that a company that pursues the right strategy andacts decisively can be successful even in a difficult business environment. In 2003, we increasedthe sales volumes of our products worldwide, and sales climbed 3.6 percent to €33.4 billion. Ignoring currency translation effects, the increase was even higher at 10.9 percent. With regard to income from operations before special items, we exceeded the forecast we made in November2003: EBIT before special items increased slightly by 3.9 percent to €3.0 billion. This was duemainly to the success of our cost-saving and restructuring programs and to our measures to opti-mize current assets. The level of income we have achieved allows us to propose a dividend of€1.40 per share.

Our business in 2003 performed well in an economic environment that was more difficultthan expected. In addition to the war in Iraq, high raw materials costs, an increasingly weak U.S.dollar and stagnating chemical markets in the United States and parts of Europe made heavy de-mands on us.

Our sales and earnings in 2003 and our record cash flow once again confirmed that a long-term strategy pays off. Over the past years, BASF has demonstrated this more persuasively thanmost other companies. Today, we can justly call ourselves the world’s leading chemical company,and we have become a benchmark for our competitors.

We are somewhat more confident when we look forward to the rest of 2004. The probabilityof synchronized global growth in all major regions has improved, and there are many indicatorsthat the chemical industry may also experience moderate growth this year. However, certain risksremain – high and volatile raw material costs, the strong euro, and, if necessary structural reformsare not achieved, weak growth in Europe. We will therefore continue to work to optimize our busi-ness structures and costs.

As we look to the more distant future, we are preparing ourselves for the increasingly challen-ging conditions that lie ahead. Our markets are changing: New customers for chemical productsare increasingly located in the emerging economies, in particular in China. Here, improvements in the standard of living mean that the number of consumers is expected to rise nearly tenfold by2015. In addition, regional events are increasingly affecting the global economy, making it harderto predict economic developments.

Against this backdrop, BASF’s management team looked hard at how we want to positionourselves in the future and made a detailed review of our strategy to date. Our appraisal showedthat we have set the right basic course. For us, this means: We are a chemical company, and wewant to concentrate on chemicals, agricultural products and nutrition and oil and gas. When theopportunity was right, we invested in growth markets and are now active in all of the world’s im-portant markets. The advantages offered by our Verbund help us to operate cost effectively and

Dr. Jürgen HambrechtChairman of the Board

of Executive Directors

Letter from the Chairman ofthe Board of Executive Directors

BASF 2003 | 5

compete with strength in tough markets. We have managed our portfolio to make us less suscep-tible to cyclicality and oil price fluctuations. To this end, we expanded our agricultural productsbusiness by acquiring the insecticide fipronil and selected seed treatment fungicides. Further-more, we sold our fibers business to the U.S. company Honeywell in 2003 and purchased its engi-neering plastics business. We also strengthened our portfolio with inorganic specialties throughthe acquisition of Callery Chemical in the United States.

On our path to the future, we are adding new dimensions to this proven strategy to ensurethat we remain the leader in the chemical industry. We have set ourselves four strategic guidelines:

– Earn a premium on our cost of capital– Help our customers to be more successful– Form the best team in the industry– Ensure sustainable development

These guidelines describe what we want to achieve and how we intend to achieve it. We willconcentrate on profitable growth. We will allocate resources more strictly to attractive businessareas in which we perform well.

We will focus even more closely on our customers and potential customers when thinking and acting. We will develop market-driven innovations and new business models to help them become more successful – making us more successful. And we will explore exciting fields of know-ledge that hold great promise for us and our customers. These include materials science, nano-technology, energy management technologies, and, in particular, biotechnology. We will seizetechnological change as an opportunity and help to shape it.

To do this we will rely on the best team in the industry, because only the best team can createbusiness success in the face of tough competition. I would therefore like to take this opportunity to thank our employees for their commitment, without which BASF’s success would not be pos-sible. We will continue to develop creative and qualified employees who approach their tasks confidently and with an entrepreneurial mindset.

In addition, we always see the basis for our business success in the context of our responsibi-lity for the environment and for society. This is why the principles of sustainable development aredeeply integrated into our values and activities. Examples include our eco-efficiency analysis andour global environmental goals, which set standards for the entire industry. Our fourth guidelinereaffirms our commitment to sustainable development, which is and will remain the basis for ouractivities. Our new Corporate Report, which you are now holding, explains how we balance the various aspects of sustainability.

Almost all innovations have their roots in chemistry – therein lies both a challenge and an opportunity for our company. We face the future with confidence and are convinced that we will besuccessful. Even so, we need a regulatory framework that supports competition. To achieve this,we therefore enter into dialogue with society.

BASF is “The Chemical Company.” We are committed to chemistry and to remaining the leader in our industry. I hope you will accompany us on this journey.

Dr. Jürgen Hambrecht

Chairman of the Board of Executive Directors

6 | BASF 2003

Board of Executive Directors Dr. Jürgen Hambrecht Eggert Voscherau

BASF 2015 – Paths to Value-adding Growth

Earn a premium on our cost of capital

Help our customers to be more successful

Form the best team in the industry

Ensure sustainable development

Dr. Andreas Kreimeyer Klaus Peter Löbbe

Board of Executive Directors

BASF 2003 | 7

Dr. Jürgen Hambrecht, 57, Chairman of the Board of Executive Directors since May 6, 2003. Chemist, with BASF for 28 years. Legal, Taxes & Insurance; Planning & Controlling; ExecutiveManagement & Development; Communications; InvestorRelations.

Eggert Voscherau, 60, Vice Chairman of the Board of Executive Directors since May 6, 2003 and Industrial Relations Director.Economist, with BASF for 35 years.Human Resources; Environment, Safety & Energy; Occupational Medicine & Health Protection; Europe; Ludwigshafen Verbund Site; BASF Schwarzheide GmbH;BASF Antwerpen N.V.

Dr. Kurt Bock, 45, business economist, with BASF for 13 years.Finance; Global Supply Chain; Information Services; Global Purchasing; Corporate Audit; South America.

Dr. John Feldmann, 54, chemist, with BASF for 16 years.Oil & Gas; Styrenics; Performance Polymers; Polyurethanes; Polymer Research.

Dr. Andreas Kreimeyer, 48, biologist, with BASF for 18 years. Functional Polymers; Performance Chemicals; Asia.

Klaus Peter Löbbe, 57, economist, with BASF for 38 years.Coatings; North America (NAFTA).

Dr. Stefan Marcinowski, 51, chemist, with BASF for 25 years.Research Executive Director. Inorganics; Petrochemicals;Intermediates; Chemicals Research & Engineering; Corporate Engineering; University Relations & ResearchPlanning; BASF Future Business GmbH.

Peter Oakley, 51, economist, with BASF for 27 years.Agricultural Products; Fine Chemicals; Specialty Chemicals Research; BASF Plant Science GmbH.

Dr. Kurt Bock Dr. John Feldmann

Dr. Stefan Marcinowski Peter Oakley

As of March 1, 2004

8 | BASF 2003

We have analyzed the prognoses for growth inthe world chemical industry and the develop-ment of future markets and reviewed our strategyin detail against this background. The resultsshow that we have made the right strategic deci-sions in recent years. This is why the basic ele-ments of our strategy remain valid.

The core ideas of our strategy have proventhemselves and we will continue to implementthem. We will concentrate on activities asso-ciated with chemistry and on expanding ourstrengths: our chemical businesses – our Ver-bund of chemicals, plastics and performanceproducts –, agricultural products and nutrition,as well as oil and gas. In the future, we focus ona portfolio that is more resilient toward cyclical-ity and oil price fluctuations.

We have always set great store in trusting part-nerships with our customers, employees, inves-tors, neighbors and society. In the future, wewant to serve them even better as a reliable partner for intelligent solutions.

Our goal is to remain the world’s leadingchemical company. With our renewed strategyBASF 2015, we will achieve this goal by success-fully combining new and proven ideas.

We are aligning our activities using four strategicguidelines:

– Earn a premium on our cost of capital– Help our customers to be more successful– Form the best team in the industry– Ensure sustainable development

Strategies for Value-adding GrowthWe want to strengthen BASF’s position as the world’s leading chemical company. The analysis of our strategyshows that we have set the right course in recent years. But our business environment is changing. We want toseize this change as an opportunity to add new elements to our strategy. Our path to the future has a name:BASF 2015.

StrategyThe Company

BASF 2003 | 9

Earn a premium on our cost of capitalOnly profitable growth will give us an edge

in the international competition for capital. In thefuture, we will therefore concentrate our fundson those business areas that are attractive and inwhich we perform well. In doing so, we will con-tinue to use the advantages of our Verbund towork cost efficiently. In all areas we want to earnour cost of capital – and a premium on it too: inother words an appropriate return on the capitalwe employ. This is why we are introducing EBIT

(earnings before interest and taxes) after cost ofcapital as a key performance indicator from 2004

onward. This parameter supports us in ourefforts to improve our cost structures, to growprofitably, and to use our capital more sparinglyand economically. In this way, we want to increa-se the value of our company.

Help our customers to be more successfulWe are there wherever our customers are.

We invested in good time in growth markets andare now active in all important markets world-wide. In order to grow profitably, we want to fo-cus even more closely on our customers’ needsin the future and develop and apply the bestbusiness models for our customers and for us.

We want to tailor our innovations more closely toimpulses from the markets. We are increasinglydeveloping new products and services in closecollaboration with key customers. We enter intoresearch and development partnerships withsuch customers to find tailor-made solutions thatensure mutual success.

In the area of specialties, we look at the in-dividual needs of our customers and develop theappropriate solution. We combine new productsand services to yield system solutions that offerour customers a competitive advantage andcreate profit potential for both them and us. Withstandard products, we concentrate on quality, reliable delivery and an appropriate price-to-performance ratio. You can find examples of howwe collaborate with customers on pages 22 to 37.

New areas of knowledge open up new mar-ket opportunities for us. Biotechnology andnanotechnology, materials science and energymanagement technologies offer us and our cus-tomers attractive business opportunities. We areexploiting this technological change and helpingto shape it. We are particularly focusing on theadvantages of biotechnology in order to tap intonew potential through innovative solutions forthe food industry, animal nutrition and agricul-ture (see pages 29 and 32).

BASF’s new corporate design is the visible expression of our path to the future. We have added a symbol to the basis

of our logo – the four letters BASF: The two squares stand for mutual success in partnership with our customers,

employees, investors, neighbors and society. A further addition to our logo reflects our claim to be the world’s leading

chemical company: BASF – The Chemical Company.

10 | BASF 2003

Form the best team in the industryWe have committed and qualified employ-

ees and an excellent management team. Together,they create BASF’s success. We value their diverse opinions, experience and interculturalcompetence as important pre-conditions for success in the global market.

We therefore want to further broaden theinternational nature of our management teamand also increase the number of women in man-agement. We want to enhance our employees’opportunities for self-learning and learning onthe job. To be an attractive employer, we havelong used performance-related pay to encourageentrepreneurial thinking: In the future, we wantto increasingly link pay at all levels to individualperformance and the success of the company(see also pages 58 to 61).

Ensure sustainable developmentWe base our activities on the principles of

sustainable development. For us, sustainable en-terprise means combining economic successwith environmental protection and social respon-sibility, thus contributing to a future worth livingfor coming generations.

With our management systems and tools forsustainability, we create value for BASF and ourpartners in business and society. At the sametime, our measures help ensure that we betterfulfill the needs of customers and consumers. We see this as a long-term competitive advantage.For example, our eco-efficiency analysis canshow our customers which products and pro-cesses are superior for their specific applicationsfrom both economic and environmental view-points. This is increasingly valued by our cus-tomers as a feature of our system solutions. Moredetails on our eco-efficiency analysis are pro-vided on pages 38 and 39.

StrategyThe Company

Finding team-based solutions: Michael Schreiber, Dr. Jun Gao and Dr. Chrys Fechtenkötter (from left to right)conduct research into improved reactors for manufacturing polymers.

Earnings

We want to earn a premium on our cost of capital. To ensure this, our operating divi-sions must achieve an EBIT (earnings before income and taxes) of at least 10 percent on operational assets. Based on planned operational assets of €28.0 billion in 2004, this would correspond to an EBIT of at least €2.8 billion for the BASF Group.

Environment, safety and product stewardship

Emissions: By 2012, we plan to reduce emissions of greenhouse gases from our world-wide chemicals business by 10 percent per metric ton of sales product and aim to emit40 percent less air pollutants compared with 2002. In addition, we want to reduce emis-sions to water by 60 percent for organic substances, by 60 percent for nitrogen and by30 percent for heavy metals.

Occupational and distribution safety: We also aim to improve our safety record signifi-cantly by 2012. Our goals: 80 percent fewer lost time accidents compared with 2002 and70 percent fewer transportation accidents compared with 2003.

Product stewardship: By 2008, we intend to extend our data even further to include all relevant information on all chemical substances handled in volumes exceeding onemetric ton per year.

Social responsibility

Employees: We want to increase the proportion of non-German senior executives froma current figure of 30 percent to 35 percent by 2005. In addition, we aim to significantlyincrease the number of female senior executives from the current level of approximately5 percent.

Delegation: In 2004, we want to further develop our globally valid Transfer Policy. Ourgoal is to ensure that employees are deployed according to the same rules, irrespectiveof the country they come from or the country in which they are assigned to work.

Personnel systems and remuneration: Also in 2004, we want to harmonize our systemsfor assessing functions, performance reviews and remuneration in the regions.

Social performance assessment: We want to make the establishment of and adheranceto internationally recognized labor and social standards transparent and reviewable atall our sites. In the course of 2004, we plan to establish a monitoring system to measureour sites according to these standards.

BASF 2003 | 11

Goals

Goals The Company

12 | BASF 2003

The German Corporate Governance Code waspublished in 2002. It represents a major step for-ward in the capital market-driven development of statutory provisions and practical implementa-tion of corporate governance. We welcome theCode and the objectives it sets out. We follow therecommendations of the German Corporate Gov-ernance Code in its revised version of May 2003

with a few exceptions. You can find the joint Dec-laration of Conformity by the Board of ExecutiveDirectors and the Supervisory Board as well as avariety of further information on our website atwww.basf.de/governance_e/reports.

Because BASF’s shares are listed on theNew York Stock Exchange (NYSE), BASF is alsosubject to U.S. capital market legislation includ-ing the Sarbanes-Oxley Act (SOA) of 2002. TheSOA contains a number of new corporate gover-nance regulations. To ensure that they are ob-served, our Supervisory Board has, for example,established a separate Audit Committee and in-troduced a new approval procedure for procuringnon-audit services from auditors. We are cur-rently implementing an intranet-based system to document the information and control systemsfor financial reporting within the BASF Group. As a result, we will be better able to evaluate andconfirm the completeness and accuracy of ourreporting and the effectiveness of the internalcontrol system. In the future, this documentationwill be reviewed by our internal audit unit and byour auditors. In general, the new U.S. regulationsconsiderably increase documentation and reviewrequirements as well as the associated expenses.

Corporate management and control by theBoard of Executive Directors and SupervisoryBoard

In contrast to the situation in many othercountries, two separate bodies work together atGerman stock corporations: a Board of ExecutiveDirectors and a Supervisory Board. Appoint-ments to the two bodies are strictly separate. A member of the Supervisory Board cannotsimultaneously be a member of the Board ofExecutive Directors.

BASF’s Board of Executive Directors is re-sponsible for the management of the companyand represents BASF Aktiengesellschaft in allbusiness undertakings with third parties. Its activities and decisions are geared to thecompany’s interests and it is dedicated to thegoal of increasing the company’s value in thelong term. The decisions made by the Board ofExecutive Directors are always based on a simplemajority. In the case of a tied vote, the castingvote is given by the Chairman of the Board.

In accordance with statutory regulations,the Board of Executive Directors reports to theSupervisory Board regularly, comprehensivelyand in a timely manner on all material mattersconcerning the company with regard to strategicplanning, business development, risk issues andrisk management. Furthermore, it agrees corpo-rate strategy with the Supervisory Board. Whererequired by the Articles of Association of BASF

Aktiengesellschaft, the Board of Executive Direc-tors must have the approval of the SupervisoryBoard for certain transactions before they areconcluded. Such cases include the purchase ofcorporate shareholdings in excess of €100 mil-lion, and the commencement of new or the ter-mination of existing business activities.

Corporate GovernanceCorporate governance refers to the entire system of managing and overseeing a company as well as all internaland external regulatory and monitoring mechanisms. Effective and transparent corporate governance guaran-tees that BASF is managed and monitored in a responsible and value-driven manner. This fosters the confi-dence of our domestic and international investors, the financial markets, our business partners, employees andthe public in the management and supervision of the company.

Management and Control Corporate Governance

BASF 2003 | 13

The Supervisory Board of BASF Aktiengesell-schaft appoints members of the Board of Execu-tive Directors and monitors and advises theBoard of Executive Directors on management issues. The Supervisory Board of BASF Aktien-gesellschaft comprises 20 members and in ac-cordance with the German Codetermination Actconsists in equal parts of shareholder representa-tives – elected by shareholders at the AnnualMeeting – and employee representatives. Super-visory Board resolutions require a simple major-ity. In the case of a tied vote, a second vote isheld and the Chairman of the Supervisory Boardmay cast a deciding vote.

Alongside the Mediation Committee, theSupervisory Board has established a Committeefor the Personal Affairs of the Board of ExecutiveDirectors and the Granting of Credits (Personal-ausschuss), which is also charged with settingBoard members’ remuneration and related con-tractual issues. The Committee comprises Super-visory Board Chairman Dr. Jürgen F. Strube(chairman) as well as Supervisory Board mem-bers Robert Oswald, Dr. Tessen von Heydebreckand Dr. Jürgen Walter.

BASF established an Audit Committee in July 2003. This Committee makes preparationsfor the negotiations and resolutions of the Super-visory Board for the approval of the Consoli-dated Financial Statements of BASF Aktien-gesellschaft as well as BASF Group, reviews theAnnual Report on Form 20-F that has to be sub-mitted to the U.S. Securities and Exchange Com-mission and deals with risk monitoring and inter-nal accounting controls. The Audit Committee is

also responsible for business relations with thecompany’s auditors. The Audit Committee com-prises Max Dietrich Kley (chairman) as well asDr. Karlheinz Messmer, Dr. Jürgen Walter andHelmut Werner, who to our great sadness diedon February 6, 2004. All members of the AuditCommittee satisfy the criterion of “indepen-dence” as prescribed by the Securities and Ex-change Commission, the U.S. stock market regu-lator.

The members of the Board of ExecutiveDirectors and the Supervisory Board are listedtogether with remuneration details on pages 61

to 66 of our Financial Report 2003.

Shareholders’ rightsAt Annual Meetings, shareholders have

rights of participation and supervision. EachBASF share represents one vote. Shareholdersmay exercise their voting rights at Annual Meet-ings either personally or through a represen-tative of their choice or through a company-ap-pointed proxy authorized by shareholders to voteaccording to their instructions. There are neithervoting caps to limit the number of votes a share-holder may cast nor special voting rights. BASF

has fully implemented the principle of “oneshare one vote.” All shareholders are entitled toparticipate in Annual Meetings, to speak and request information from the Board relating toitems on the agenda to the extent necessary tomake an informed judgment of the company’s affairs.

Corporate Governance Management and Control

14 | BASF 2003

Six values describe our philosophy and the wayin which we want to achieve our goals:

– Sustainable profitable performance – Innovation for the success of our customers – Safety, health and environmental protection – Personal and professional competence– Mutual respect and open dialogue – Integrity

Our values are explained by principles that canbe found on the Internet at www.basf.de/values.

Living our values worldwideOur values are conveyed within the com-

pany through the exemplary role of managersand employees and on the basis of respect for allcultures. The target agreement process helpsmanagement establish the principles for our activities in the BASF Group in a binding manner.The Values and Principles are a permanent fea-ture of the personal target agreements of BASF

Group executives. Through the subsequent tar-get agreements that executives then make withtheir employees, the Values and Principles are

binding for all individuals. The relevant unitsmake their expertise available to help implementthe Values and Principles. Our environmental,health and safety activities, for example, are or-ganized within a worldwide network managed bythe competence center Environment, Safety &Energy.

Integrity protects us against risks Employees who act with integrity are essen-

tial for BASF’s success: Violating laws and com-petition regulations considerably damages thereputation of a company and the confidence ofits partners. This is why we view integrity notonly as a value and as a guiding principle for ourbehavior, but also as an important aspect of riskmanagement. We therefore introduced Codes ofConduct based on our Values and Principles in2000. These take into account legislation at thenational level as well as the functions and cultu-ral environment of each Group company. Codesof Conduct now apply for approximately 97 per-cent of all our employees.

Chief Compliance Officer responsible for fur-ther development

The Codes of Conduct lie at the heart ofBASF’s comprehensive Compliance Program.The aim of the Compliance Program is to inte-grate the Codes in the everyday activities andconsciousness of all employees through a combi-nation of information and training. BASF was oneof the first German companies to appoint a Chief

Clear Principles for our ActivitiesSustainable business success needs both strategic goals and clear principles on how to achieve these goals.This is why we have a system of values for all our activities by which we can be measured: the Values andPrinciples of the BASF Group, and our Code of Conduct/Compliance Program.

Management and Control Principles for our Activities

BASF 2003 | 15

Compliance Officer, who has been responsiblefor managing and developing the programGroup-wide since January 2003. The ComplianceProgram includes systematic introduction andtraining sessions for employees according totheir particular duties. All employees can seekadvice via telephone hotlines and other points ofcontact. Backup communication on the subject ofcompliance and regular monitoring by the Cor-porate Audit department provide the Programwith further support.

Regular training enhances knowledge For BASF, regular training is the most im-

portant way of firmly establishing the concept of compliance within the company. This is whywe carried out more than 200 antitrust trainingseminars in 2003 for groups of employees inmarketing and sales.

In January 2004, BASF Aktiengesellschaft inLudwigshafen launched a broad based informa-tion and training campaign to inform and contin-uously update employees about the ComplianceProgram. The campaign provides all employeeswith information on important regulations fortheir respective work area. In the future, we wantto organize detailed information events for newemployees on a regular basis. The training mate-rials used in Ludwigshafen will also be suppliedto all Group companies in Europe.

In the United States, BASF installed a LegalCompliance and Education Center (LCEC) on thecompany’s intranet as far back as 1997. Employ-ees with the relevant responsibilities are familiar-ized with the Compliance Program by means of aweb-based training program. Executives and em-ployees in marketing and sales additionally workon more advanced training modules. More than7,000 employees in the United States, Canada,Mexico and South America had registered withthe LCEC by the end of 2003.

Group companies in other countries also carryout regular training measures. BASF Japan hasheld compliance seminars for employees since2001. Last year, they were supplemented by written information and a handbook on our value“integrity.”

In 2003, training on our Code of Conductformed an important aspect of day-to-day activ-ities at BASF. Additionally, many Group compa-nies informed their employees in writing, atevents or via the company intranet about a variety of compliance-related issues.

Dedicated to fighting corruption Our commitment to high standards and to a

business policy that does not tolerate corruptionwas strengthened by a further step last year: InSeptember 2003, BASF became a member ofTransparency International, a Berlin-based NGO that has set global standards in the fightagainst corruption. We also play an active role: In India, for example, BASF’s PAC (PeopleAgainst Corruption) initiative, founded in 2002,contributes to the fight against corruption. Together with the Indian government’s CentralVigilance Commission, BASF also published ahandbook on fighting corruption in 2002.

Principles for our Activities Management and Control

16 | BASF 2003

Profitable growth is our strategic goal. We have reinforced

this with our strategy BASF 2015. Our strong team works

together with our customers to find the best solutions for

mutual success. In doing so, we conduct our business in

accordance with the principles of sustainable development

to ensure a future worth living for coming generations.

In the following chapters, we describe what we have done

in the past year to achieve a balance between business

success, environmental protection and social responsibility.

You can find additional information and data at the Internet

addresses provided at the end of each section.

Economic Results and Perspectives

Investment in the future:

In Nanjing, China, BASF is

building a new integrated

petrochemicals site together

with its partner SINOPEC.

18 | BASF 2003

In recent years, long-term investors have profitedfrom the good performance of BASF shares.Shareholders who invested €1,000 in BASF

shares at the end of 1993 and reinvested the divi-dends (excluding tax credits) in additional BASF

shares would have increased the value of theholding to €3,877 after 10 years at the end of2003. This increase of 287.7 percent correspondsto an average annual return of 14.5 percent, andis considerably higher than the correspondingreturn for the DAX 30 (5.7 percent) and theEURO STOXX 50 (9.1 percent).

Dividend of €1.40 and further share buybacksto increase shareholder value

We aim to offer our shareholders an appro-priate share in the success of the company in theform of a dividend. We therefore base the level of the dividend on our income from operations inthe previous year. In view of the only slight in-crease in income from operations compared with

2002, the Board of Executive Directors is propos-ing to maintain the dividend at €1.40. As a result,the total amount payable will be €779 million.Taking into account the per share dividend andthe year-end price, BASF shares provided a divi-dend yield of 3.14 percent in 2003.

In 2003, BASF Aktiengesellschaft boughtback 13.67 million shares for a total of €500 mil-lion on the stock exchange for an average priceof €36.55 per share. This measure reduced ourshare capital by 2.4 percent. The buy-back pro-gram is aimed at reducing our cost of capital andincreasing earnings per share. BASF plans to buyback shares for €500 million in 2004.

BASF shares included in important indicesBASF shares are included in a number of

internationally important indices* with the follow-ing weightings: DAX 30: 6.0 percent, STOXX 50:

1.1 percent, EURO STOXX 50: 1.8 percent, MSCI

World Index: 0.2 percent, S&P Global 100: 0.5

BASF SharesBASF shares performed very well in 2003, increasing in value by 28.1 percent. BASF shares also performedconsiderably better than the EURO STOXXSM 50 index, which rose by 18.4 percent, but did not perform as well as Germany’s DAX index, which climbed 37.1 percent.

Change in value of an investment in BASF shares in 1994–2003(with dividends reinvested, indexed)

Change in value of an investment in BASF shares in 2003(with dividends reinvested, indexed)

Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec.

+37.1%

+28.1%

+18.4%

’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03

+287.7%

+139.4%

+74.9%

70

80

90

100

110

120

130

140

100

150

200

250

300

350

400

450

EURO STOXX 50DAX 30BASF AGEURO STOXX 50DAX 30BASF AG

*Weighting as of December 31, 2003

Economic Results and Perspectives BASF Shares

BASF 2003 | 19

percent. In 2003, BASF shares were included inthe Dow Jones Sustainability Index for the thirdyear in succession and remained a member ofthe FTSE 4 Good Index. Our membership in sustainability indices shows that BASF is recog-nized internationally as a company that conductsits business in accordance with the principles ofsustainable development.

Shareholder base further broadenedAt the beginning of 2004, we carried out

a shareholder survey that indicated the stronginterest of international investors in BASF

shares. Non-German investors hold 52 percent of BASF’s share capital. U.K. and U.S. investorsare particularly well represented, accounting for 15 percent and 14 percent of the share capital,respectively. Institutional investors – for examplebanks and investment companies – hold 72 per-cent of the share capital; 28 percent is held byprivate investors. Many of our employees andexecutives own BASF shares, and we offer sharepurchase programs in many countries to encou-rage them to become shareholders and thuscoowners of BASF. BASF Aktiengesellschaft’sentire share capital is listed on the stock market.As of December 31, 2003, all of the 556.6 millionno par shares were widely held.

Investor relations: Close dialogue with thecapital markets

Our corporate strategy aims to create valuesustainably. We support this strategy throughregular and open communication with all capitalmarket participants. For institutional investors,we hold individual meetings and numerous road-shows worldwide to help them interpret the busi-ness situation and the company’s future develop-ment. All this information is also available on our Investor Relations homepage together with pre-sentations on the company. We also hold inform-ation events to give private investors an insightinto the world of BASF.

INVESTOR RELATIONS ON THE INTERNET

You can find BASF’s Investor Relations homepage on

the Internet at www.basf.de/share. If you are interested

in receiving further information on BASF by e-mail, you

can subscribe to our newsletter there.

Dividend(without tax credit)€

Investment in BASF shares –average annual change

1.0

1.5

2003

BASF AG DAX 30 EURO STOXX 50

28.1%

37.1%

1994

–200

319

99–2

003

14.5%

5.7%

9.1%

8.8%

–1.2%

3.2%

18.4%

’99 ’00 ’01 ’02 ’03

Dividend Special dividend

1.13

1.301.40 1.40

2.00

2.0

BASF Shares Economic Results and Perspectives

20 | BASF 2003

SalesThe BASF Group’s sales in 2003 rose

€1,145 million compared with the previous yearto €33,361 million (volumes 7.6 percent, prices2.1 percent, currency –7.3 percent, acquisi-tions/divestitures 1.2 percent). The weakness ofthe U.S. dollar caused sales to decline consider-ably in euro terms in North America (NAFTA),South America and Asia. In local currency terms,however, our sales rose by 10 percent in NorthAmerica, by 13 percent in South America and by25 percent in Asia.

Income from operationsAt €2,658 million, income from operations

increased slightly compared with the previousyear. Improvements in the Agricultural Products& Nutrition, Oil & Gas and Other segments offsetthe decline in Chemicals, Performance Productsand Plastics. Income from operations in 2003

contained special charges of €335 million, com-pared with €240 million in the previous year.This amount includes €305 million for restruc-turing measures taken to increase efficiency aspart of the Ludwigshafen Site Project and to re-organize our service divisions in North America(NAFTA).

Income before taxesCompared with 2002, income before taxes

declined €473 million to €2,168 million in 2003.This decline is due to the almost identical decline

in the financial result by €490 million. In 2002,the financial result contained gains from the saleof securities. In 2003, income from financial assets also declined and certain financial assetshad to be written down.

The return on assets as a percentage of in-come before taxes plus interest expenses was 7.4 percent in 2003 compared with 8.4 percent inthe previous year.

Net income/earnings per shareIncome before taxes and minority interests

was €2,168 million and the tax expense was€1,192 million or 55 percent. After deductingthese taxes and minority interests of €66 million,net income in 2003 was €910 million, or €594

million lower than in 2002. This decline was dueto lower income before taxes and minority inter-ests as well as tax expenses that were €150 mil-lion higher than in the previous year (moredetails on page 27 of the Financial Report).

Earnings per share in 2003 were €1.62,

compared with €2.60 in the previous year. In ac-cordance with U.S. GAAP, we posted net incomeof €1,338 million or €2.38 per share in 2003.

Proposed appropriation of profitBASF Aktiengesellschaft achieved net in-

come of €1,103 million. Profit carried forwardfrom the year 2002 was €10 million. After trans-ferring €334 million to other retained earnings,profit retained was €779 million. At the Annual

Finance

Sales

Income from operations before interest, taxes, depreciation andamortization (EBITDA)

Income from operations (EBIT) before special items

Income from operations (EBIT)

Financial result

Income before taxes and minority interests

Net income

Earnings per share (€)

Net income in accordance with U.S. GAAP

Dividend per share in accordance with U.S. GAAP (€)

32,216

5,105

2,881

2,641

0

2,641

1,504

2.60

1,717

2.96

33,361

5,110

2,993

2,658

(490)

2,168

910

1.62

1,338

2.38

3.6

0.1

3.9

0.6

.

(17.9)

(39.5)

(37.7)

(22.1)

(19.6)

20022003Million € Change in %

Sales and earnings

Economic Results and Perspectives Finance

Cash used in financing activities in 2003 was€1,359 million. We bought back 13.7 millionshares for €500 million at an average price of€36.55 per share. We paid out a total of €857

million in dividends and profit transfers in 2003.Dividend payments to shareholders of BASF Ak-tiengesellschaft for fiscal year 2002 totaled €789

million or €1.40 per share. €68 million in profitswas paid or transferred to shareholders in fully orproportionally consolidated companies. Financialindebtedness decreased to €3,507 million due tocurrency translation effects. We issued a €1 bil-lion Euro Benchmark Bond maturing in 2010,taking advantage of the favorable capital marketsituation to refinance a portion of our short-termdebt.

Balance sheet structureBASF’s total assets declined by €1.5 billion

to €33,602 billion as a result of a currency-relat-ed decline in assets in North America (NAFTA)

and the reduction of inventories. Fixed assetsaccounted for 57.9 percent of total assets, currentassets for 42.1 percent. Stockholders’ equitydecreased by €1,063 million to €15,879 billion.This was due to the further buy-back and cancel-lation of shares as well as to currency translationeffects. As a result, the equity ratio declinedslightly to 47.3 percent compared with 48.3 per-cent in 2002. Long-term liabilities rose by€1,074 million to €10,285 million. Short-term li-abilities declined considerably by 16.7 percent to€7,438 million. Long-term financial indebtednessrose by €1,199 million to €2,995 million due inparticular to the issue of a €1 billion Euro Bench-mark Bond with a maturity of seven years. Short-term financial indebtedness was reduced throughrestructuring from €1,814 million to €512 million.

BASF 2003 | 21

Meeting on April 29, 2004, the Board of Execu-tive Directors and the Supervisory Board willpropose a dividend payment of €1.40 per qualify-ing share. If shareholders approve this proposal,the total dividend payable on qualifying shares asof December 31, 2003 will be €779 million.

Statements of cash flowIn 2003, cash provided by operating ac-

tivities was €2,565 million higher than in 2002,despite significantly lower net income. This wasdue to cash released from current assets becausewe significantly reduced inventories and reducedpayment terms. In addition, there was an in-crease in expenses that did not lead to cash out-flows, such as depreciation and amortization andadditions to provisions. By contrast, in 2002, pro-visions were reduced through payments and con-tributions were made to pension funds in theUnited States.

Cash used in investing activities amount-ed to €3,260 million. We spent €2,071 million onadditions to tangible and intangible assets. Asplanned, we reduced them compared with 2002,bringing them significantly below the level ofamortization and depreciation on tangible andintangible fixed assets. Expenditures for acquisi-tions totaled €1,480 million. Proceeds from di-vestures amounted to €86 million. In particular,acquisitions involved the acquisition of the fipro-nil business from Bayer CropScience and thepurchase of Honeywell’s engineering plasticsbusiness. We spent €191 million on financial as-sets, marketable securities and financial receiv-ables. The sale and disposal of fixed assets andsecurities of current assets generated proceedsof €396 million.

Million €

Cash provided by operating activities

Cash used in investing activities

Cash used in financing activities

2003

4,878

(3,260)

(1,359)

2002

2,313

(2,164)

(265)

Statements of cash flows

Finanzen Wirtschaftliche LeistungFinance Economic Results and Perspectives

22 | BASF 2003

Starting from a few raw materials such as crudeoil, natural gas, rock salt, air and sulfur, we produce basic chemicals and intermediates thatare turned into higher-value chemicals along ourvalue-adding chains. This is how a huge range of products is created – from plastics or crop protection products to fuel additives or vitamins. Our Production Verbund conserves resourcesand therefore costs because the products and by-products from one plant are processed furtherin other production units, while infrastructureand service facilities are shared.

We therefore expand our Verbund whereverthis offers us advantages. And we continuouslyoptimize Verbund structures. In 2003, we con-verted part of our chloralkali plant in Ludwigs-hafen to the more energy-efficient membraneprocess that consumes less electricity and thusavoids CO2 emissions. This project is only one of

numerous ways in which the Chemicals segmenthelps provide BASF with key basic chemicals andintermediates – reliably and cost-effectively.

Exploiting opportunities for growthWe are opening up the growing Asian

market for BASF with a series of capital expendi-tures: In summer 2003, we laid the cornerstonefor integrated production plants for tetrahydrofu-ran (THF) and polytetrahydrofuran (PolyTHF®) inCaojing, China, which are scheduled to start operations in 2005. With PolyTHF®, a startingmaterial for spandex fibers, we want to becomethe preferred supplier to China’s rapidly growingtextile industry. The plant will be the first to use a new technology developed by BASF that elimi-nates synthesis steps, thus saving both costs and energy. Our capital expenditure project inNanjing, China, is also making good progress:

ChemicalsInorganics, petrochemicals and intermediates form the foundation of our Production Verbund and are partof BASF’s portfolio of approximately 8,000 sales products. In 2003, we posted higher sales in the Chemicalssegment. Compared with the previous year, however, income from operations declined due to higher rawmaterials prices, persistent competitive pressure and costs for modernization projects. An important high-light in 2003: We strengthened our portfolio of inorganic specialties through an acquisition.

Intermediates30.4%

Petrochemicals56.8%

Inorganics12.8%

2002 2003

635

393

5,3175,752

495527

98 108

2002 2003 2002 2003 2002 2003

Income fromoperations Million €

Sales by divisionMillion €

Capital expendituresMillion €

Research anddevelopment expensesMillion €

Economic Results and Perspectives Chemicals

BASF 2003 | 23

In 2005, we plan to start operations at a new Verbund site from which we will supply the Asianmarket with important basic products such as organic acids, amines and solvents.

In addition, we strengthened our globalportfolio of inorganic specialties through our acquisition of Callery Chemical from the MineSafety Appliances Company, United States, in 2003.

Close cooperation with our customersOur goal is to recognize our customers’

needs and supply the ideal solutions. We havedeveloped a new business model for our custom-ers in the Asian plastic and artificial leather in-dustries – a cross-divisional team deals with theproduct range of intermediates, polyurethanesand petrochemicals. Both our customers andBASF benefit from this approach: The customerhas fewer contacts to deal with and BASF is able

to develop the market more efficiently thanks tothe combined product portfolio.

In 2003, we developed a new logistics con-cept for our business with glues and impregnat-ing resins. Selected major customers with suffi-ciently high requirements are now supplied byrail in complete trainloads. This is both cheaperand easier on the environment than road deliver-ies. We supply "just in time,” which helps ourcustomers manage their stocks efficiently. Bothpartners profit from the lower cost of rail freight.Measures like these have helped ensure that ourbusiness with glues and impregnating resinsgrew faster than the market in 2003.

Further information and data atwww.reports.basf.de/chemicals

A perfect addition to our value-adding chains

Boron and potassium: Two simple chemical ele-

ments at first glance. But experts can turn them

into high-demand products, such as those used to

create complex active ingredient molecules for the

pharmaceuticals industry. This is why we acquired

Callery Chemical from the U.S.-based Mine Safety

Appliances Company in 2003: Alkali metal deriva-

tives, higher alcoholates and boron specialties are

a perfect addition to BASF’s global portfolio of

inorganic specialties. These products help our cus-

tomers improve the yields of their syntheses of

active ingredients and at the same time suppress

side reactions. As well as our customers in the

pharmaceuticals industry, there are numerous other

customers – from the wood and glue industries to

the electronics and metalworking industries – who

rely on the “specialists” from BASF.

Experts ensure outstanding quality: Andreas Scheffelchecks the purity of a sample.

24 | BASF 2003

On May 1, 2003, we completed the sale of ourfibers business to Honeywell, United States, andin turn acquired its engineering plastics busi-ness. We subsequently renamed our segment“Plastics.” The segment still consists of the Sty-renics, Performance Polymers and Polyurethanesdivisions.

Concentrating on our strengthsThrough the acquisition of Honeywell’s en-

gineering plastics, we have become one of theworld’s leading suppliers in this area. We havesuccessfully integrated all the 500 former Honey-well employees as well as customers and produc-tion sites.

In order to grow profitably, we differentiatebetween our standard polymers business –where efficient processes are the main successfactor – and our specialties business, where wecooperate with our customers to employ prod-ucts and knowledge to our mutual success. Inproduction, our strategy is to operate efficient

world-scale plants in key markets, in some casestogether with partners. In 2003, for example, westarted constructing a production site for isocya-nates in Caojing, China, which we will operatewith Chinese partners and the U.S. companyHuntsman. We intend to supply other companiesincluding Bayer from these plants. In Kuantan,Malaysia, we plan to construct a plant for poly-butylene terephthalate (PBT) together with TorayIndustries, Japan. We have also entered into apartnership with Dow: Here, we are planning tobuild a world-scale plant for propylene oxide, aprecursor for the manufacture of polyurethanes.The plant is scheduled to start operations in 2007 at the earliest and will utilize a new, cost-efficient process that generates only water as aby-product. In 2003, we ceased producing ABS

in Geleen, the Netherlands, because we were nolonger sufficiently competitive. In Ludwigshafen,we will also close plants for polystyrene com-pounds and mothball a Styrolux® plant by mid-2004.

Plastics We are one of the world’s leading suppliers of plastics and we want to grow profitably in the long term. Toachieve this goal, we are implementing numerous measures to realign our business: We are strengthening ourcore areas, tapping into new fields of business and operating modern plants – either independently or togetherwith partners. In 2003, we have already benefited from this strategy and were able to increase sales volumes by9.2 percent in a difficult business environment. Sales were up 3.7 percent. Higher sales prices were unable tocompensate fully for higher raw materials prices and unfavorable currency effects, and income from operationstherefore declined significantly.

Polyurethanes33.2%

Styrenics41.3%

Performance Polymers25.5%

2002 2003

582

296

8,477 8,787

636

539

138 142

2002 2003 2002 2003 2002 2003

Income fromoperations Million €

Sales by divisionMillion €

Capital expendituresMillion €

Research anddevelopment expensesMillion €

Economic Results and Perspectives Plastics

BASF 2003 | 25

We offer our customers advantagesOne of our strengths lies in giving engineer-

ing plastics exactly those properties requested byour customers. Our construction material Ultra-mid® can be used for many engine and gearcomponents – it is extremely impact resistantand retains its shape at extreme temperatures.This is why it was chosen as the material for oilsumps fitted to the new range of Mercedes-BenzActros trucks built by DaimlerChrysler. OurUltratect® foam, on the other hand, is light andextremely stable and has found a place in thedriver’s compartment: It was used for the firsttime in the production of the rear seat backrestfor BMW’s M3 CLS car and reduces weight by 50 percent compared with conventional steelcomponents.

We develop the right solutions together with our customers: For example, through 24 systemhouses for polyurethanes worldwide, we offermore than 8,000 formulations, most of which can be supplied within 48 hours. But BASF alsooffers a comprehensive service for standard plastics: Together with four partners, we startedoffering the highly efficient Colorflexx® systemfor self-coloring polystyrene and styrene co-polymers in 2003. This system saves costs, reduces delivery times and allows customers to produce faster and more flexibly.

Using e-commerce, our customers aroundthe world can reach us day and night. In 2003,we achieved sales of more than €1 billionthrough activities such as PlasticsPortal, and in some business areas e-commerce already accounts for more than 50 percent of sales.

Plastic keeps ships and bridges in shape

Ships at sea are exposed to extreme conditions,

and material damaged by corrosion or stress can

harm man and the environment. In order to reduce

these risks, BASF’s subsidiary Elastogran has

developed the Sandwich Plate System™ (SPS)

together with the British company Intelligent

Engineering. Here, conventional steel structures are

replaced by a composite steel-polyurethane-steel

system. SPS dampens vibrations and results in

lighter, stronger structures. It also prolongs the life

of the ship’s segments and significantly reduces

repair times. Since 2001, SPS has been used to

repair the decks and holds of more than 20 ships

with an area totaling 25,000 square meters (30,000

square yards). In addition, many new ship seg-

ments have been built using SPS. The system also

offers an intelligent solution for land-based appli-

cations. For example, 2003 saw the inauguration

of the first SPS road bridge in Quebec, Canada.

Thanks to the composite material it is 40 percent

lighter than a conventional construction. In the

future, we plan to expand on new building activities

like these.

Further information and data atwww.reports.basf.de/plastics

SPS can reduce repair times for ships by up to 50 percent.

26 | BASF 2003

We want to understand how our customers thinkand what they need. Joint development projectsmake us a strategic partner for our customersand show us what the market needs. We offerinnovative problem solutions and customer-specific systems. Important factors for our suc-cess are powerful research and development,lean structures, competitive production and aglobal presence.

Intelligent, environmentally friendly solutionsWhich adhesive raw materials are best

suited to certain applications? To find this out,we invest in coatings technology as well as inpolymer research and applications technology.Together with our customers, we test the interac-tion between coating conditions, carrier materi-als and pressure-sensitive adhesives at our newcoating plant in Ludwigshafen. In this way, wecan provide the most suitable products and at the

same time help our customers improve their pro-duction processes. The Robot Application Center(RACE), which was opened at our site inMünster, Germany, in 2003, has the same goal:Here, BASF Coatings has invested approximately€3 million in the coatings test facility, which al-lows its customers in the automotive industry tosimulate coating of original-size body panels.

Working across disciplines is an importantpre-condition for finding solutions that fit ourcustomers’ systems. Together, applications spe-cialists for leather chemicals, developers of de-tergents and cleansers and university research-ers developed the new and versatile leather de-greasing agent Eusapon® OD for the leather andwool-processing textile industry. Compared withconventional agents, this product cleans leathermore thoroughly, preserves wool’s natural sheen, and is more economical and more easilybiodegraded.

Performance ProductsPerformance chemicals, coatings and functional polymers improve our customers’ products: They enhancethe quality and properties of many everyday items. In 2003, sales in this segment declined in particular dueto the weak U.S. dollar as well as a difficult business environment in some customer industries. High rawmaterials prices additionally impaired income from operations. The difficult year 2003 showed that sustain-able profitability cannot be achieved without the rigorous implementation of past restructuring measuresand continuous efforts to reduce costs.

FunctionalPolymers32.4%

PerformanceChemicals41.2%Coatings26.4%

2002 2003

646

4788,014

7,633

288236 222 240

2002 2003 2002 2003 2002 2003

Income fromoperations Million €

Sales by divisionMillion €

Capital expendituresMillion €

Research anddevelopment expensesMillion €

Economic Results and Perspectives Performance Products

BASF 2003 | 27

Thanks to our competence in chemical synthesesand production processes, we can develop newproducts that rapidly find market acceptance.One example is our high-purity methanesulfonicacid, which offers the best available quality. Thisproduct offers the advantage that it can be usedwithout cost-intensive pretreatment, for examplein the electroplating industry. Because methane-sulfonic acid is biodegradable and has favorabletoxicological characteristics, it is replacing prod-ucts that have a greater impact on the environ-ment. In 2003, we started operations at a newproduction plant for high-purity methanesulfonicacid in Ludwigshafen that is integrated into ourProduction Verbund and produces virtually noemissions.

Global strategies, local solutionsWe want to serve customers according to

their needs, wherever they are located. We arethe only global player in the automotive coatingsindustry with its own production capacities in Ja-pan. Our customer-oriented business models, forexample for General Motors, demonstrate howour regional solutions and global strategies areoptimally interlinked: Irrespective of whetherthey need automotive coatings and brake fluid inAsia or plastic components in the United States,General Motors has just a single contact at BASF

who coordinates all orders and queries world-wide with the help of four colleagues. This ap-proach has not only helped boost sales but hasalso been commended: General Motors honoredus with its 2002 Supplier of the Year Award.

Cooperation from paper fibersto printed products

Numerous production steps and partners are needed to

turn fibers, paper chemicals and printing ink into a news-

paper. To identify ways of improving quality and reducing

costs in the entire process chain, we initiated a coopera-

tive project with Axel Springer AG, a leading producer of

print media; Omya, a pigment manufacturer; and Voith

Paper, a supplier of paper machines. Each of the partners

contributes special expertise to find joint solutions for

paper and print technology. The individual steps in the

process are optimally adjusted with one another from

paper production and finishing through to the final printed

product. BASF is able to supply a wide range of expertise

thanks to close cooperation between developers and

users in the areas of paper and printing inks. For example,

with Axel Springer AG we have developed the use of a

completely new paper quality known as coated coldset.

Here, an inexpensive base paper receives a thin pigment

coating, making it whiter and easier to print on. It can then

be used to produce high-quality weekend supplements

or even magazines using the cost-effective offset printing

process. The new quality can be both seen and felt: The

printing is particularly sharp and the supplements are

pleasant to the touch.

Further information and data atwww.reports.basf.de/performance_products

Checking the printed product:

Herbert Woodtli (left), head of

central purchasing at Axel

Springer AG, and Dieter Meck,

manager technical services for

paper at BASF, examine the

new paper quality.

28 | BASF 2003

Fine Chemicals: Innovations for our customers

Whether it’s a matter of beta-carotene inmultivitamin drinks or polymers in hairstylingproducts, fine chemicals from BASF are re-sponsible for the functionality of many everydayproducts.

We develop creative and tailor-made solutions for our customers. In the field of hairstyling, for example, we have set new standardsfor fixative polymers: Luviset® Clear producescrystal clear hair gels used to create hairstylesthat stand up to wind and weather. Innovation inskin care: With Uvinul® A Plus, we are launchinga completely new UV filter that is photostableand thus offers longer lasting sun protection.

We strengthen our long-term competitive-ness by combining our technology with the advantages provided by our Verbund. In 2003,we began operating a new world-scale plant forvitamin B2 in Gunsan, Korea. The facility’s bio-technological process combines both economicand environmental benefits. We have almost

completed restructuring and expanding largeparts of our Production Verbund for vitamins: Inthe first half of 2004, our new 40,000 metric tonplant for citral in Ludwigshafen will make thisaroma chemical the key component in the pro-duction of vitamins A and E as well as caroten-oids. We are also strengthening our position fornumerous aroma chemicals.

We have expanded our business as plannedin the challenging area of contract manufactur-ing. We successfully combine our good relationswith selected partners in the pharmaceuticals industry with a broad range of chemical tech-nologies and efficient research management. By 2010, we plan to be a leading supplier in this attractive growth segment.

Agricultural Products: Focusing on customers’ needs

Modern crop protection products need tocombat fungal diseases and harmful insects reli-ably and protect crops from weeds. At the sametime, they must not harm humans or the environ-

Agricultural Products & NutritionIn our Agricultural Products division, we increased sales despite a difficult market environment and despitethe weakness of the U.S. dollar compared with the euro. Both of these effects also negatively impactedsales in the Fine Chemicals division. We strengthened our portfolio through acquisitions, by launching inno-vative products and by divesting a number of non-strategic products. We significantly increased incomefrom operations before special items. Our cost-reduction measures are proceeding according to plan andare already paying off.

AgriculturalProducts63.3%

Fine Chemicals36.7%

2002 2003

55

359

4,924

5,021

245

1,273

367 309

2002 2003 2002 2003 2002 2003

Income fromoperations Million €

Sales by divisionMillion €

Capital expendituresMillion €

Research anddevelopment expensesMillion €

Economic Results and Perspectives Agricultural Products & Nutrition

ment. We offer a range of high-performance fun-gicides, insecticides and herbicides that guaran-tee our customers optimal crop yields. In thecoming years, we plan to develop for marketseven crop protection active ingredients with atotal sales potential of €700 million; we are cur-rently preparing to launch six active ingredients.

In March 2003, we extended our portfolioby purchasing the insecticide fipronil togetherwith selected seed treatment fungicides fromBayer CropScience. Fipronil will be particularlyimportant in strengthening our insecticide busi-ness in growing specialty markets. We are opti-mizing our portfolio to ensure our long-term suc-cess: By targeting active ingredients and formu-lations to the changing needs of our customers,we can also reduce complexity and improve

earnings. Here, a contribution has been made by divesting our soil improvement products busi-ness to Kanesho Soil Treatment, Belgium.

Plant biotechnology: New solutions discovered

In the area of plant biotechnology we aredeveloping solutions for more effective agricul-ture and healthier nutrition as well as conductingresearch into plants to make products more effi-ciently. One of our aims is to improve the cultiva-tion characteristics of crops: In 2003, we suc-ceeded in identifying genes that allow the modelplant Arabidopsis thaliana to withstand periodsof drought. In a second step, this drought resis-tance will now be transferred to crops such ascorn (maize), soybeans or wheat.

Convincing results: Dr. John-Bryan Speakman, cropprotection researcher at BASF, checks the efficacyof the fungicide F 500® in model plants.

Help for South American soybean farmers

The success story of F 500®, our innovative active

ingredient to combat fungal diseases in plants, is now

continuing in South America: We have further devel-

oped the active ingredient – which was previously used

in cereals – for use in soybeans. Only two years after

launching the product in South America, we have

shown customers the benefits of this strobilurin and

its potential use in soybeans. The breakthrough came

in the 2003/04 growing season when a devastating dis-

ease known as soybean rust spread from Paraguay

right down to Brazil. With Comet® and Opera® we had

the right solutions at the right time in the right place.

Working under great pressure, our fungicide team

successfully used their expertise in launching the

new products. F 500® lived up to its name as a broad-

spectrum fungicide that helped increase yields of

soybeans significantly. With our excellent knowledge

of crops and markets, we succeeded in entering into

a new business area.

Further information and data atwww.reports.basf.de/agrowww.reports.basf.de/nutrition

Agricultural Products & Nutrition Economic Results and Perspectives

30 | BASF 2003

BASF’s oil and gas business is conductedthrough Wintershall. This wholly owned subsidi-ary has more than 70 years’ experience in the ex-ploration and production of oil and gas. Winters-hall is the largest German producer of crude oiland natural gas and is active in promising re-gions worldwide. In 1990, we joined forces withthe Russian enterprise Gazprom – a strong part-ner with the world’s largest gas reserves. Sincefounding WINGAS, we have expanded trading ofnatural gas in Germany. Today, we are extendingour activities under the motto “Gas for Europe,”and are cooperating to produce natural gas inRussia.

Exploration and production: Positionstrengthened

In exploring for and producing oil and gas,we rely on new technologies and strong partner-ships. This approach also paid off in 2003: Lastyear, we produced a total of 13.7 million metrictons of oil equivalent, or 12 percent more than in

2002. As a result, our exploration and productionactivities make the largest contribution to thesegment’s income from operations. Our successhere was due to the development of new depositsin North Africa and the Dutch North Sea; the in-tegration of Clyde Netherlands, which we ac-quired in 2002; as well as increased productionin existing fields.

To ensure our success in the long term, weare constantly exploring for new deposits in ourcore regions. In addition, we are always inter-ested in acquiring promising new concession areas in which we can explore for and produceoil and gas. In 2003, for example, we wereawarded a promising exploration block in theDutch North Sea as well as five blocks off thecoast of the United Kingdom. In Argentina, acquisitions include a 27 percent stake in a con-cession off the coast of Tierra del Fuego as wellas two concessions in Patagonia. In addition, weplan to explore for oil in the Russian sector of the Caspian Sea in 2004.

Oil & GasIn 2003, Oil & Gas was again our highest-earning segment, with income from operations exceeding the stronglevel of 2002. In order to ensure our long-term growth objectives, we continued to invest in 2003 to increaseour production and ensure our reserves. Our recipe for success is to focus our activities on promising core regions in Europe, North Africa, South America and Russia, as well as the Caspian region in the future. At 20.1 percent, sales volumes in our natural gas trading business grew significantly faster than the market.

2002 2003

1,2101,365

4,199

4,791

920

323

113 123

2002 2003 2002 2003 2002 2003

Income fromoperations Million €

Sales by divisionMillion €

Capital expendituresMillion €

Research anddevelopment expensesMillion €

Economic Results and Perspectives Oil & Gas

BASF 2003 | 31

Natural gas trading: On course for furthergrowth

In 2003, we significantly increased salesvolumes in our natural gas trading business to286.5 billion kilowatt hours, or 20.1 percent morethan in 2002. This area has grown to become astable pillar for the segment and offers consider-able potential for further growth. WINGAS, ajoint venture between Wintershall (65 percent)and the Russian company Gazprom (35 percent),is already one of the leading German gas com-panies. We have our own pipeline network spanning more than 2,000 kilometers and ownWestern Europe’s largest underground naturalgas storage facility in Rehden, Germany. To expand our business further – even beyond Ger-many – we want to optimize this network, whichhas been designed as a focal point for the Euro-pean natural gas markets.

We are using the liberalization of the Euro-pean natural gas market as the basis for growth.For example, since the beginning of 2003, WINGAS started marketing natural gas in Belgium and has meanwhile secured a marketshare of 6 percent for 2005. We have establishedWINGAS Belgium, headquartered in Brussels,with the aim of intensifying these marketing efforts. We have also expanded our activities inthe United Kingdom in 2003 and have thereforedecided to create the HydroWingas gas market-ing joint venture together with Norsk Hydro,Norway. With a 25 percent stake in North WestEuropean Hub Service Company (HubCo) wealso have acquired an opportunity to participatein establishing an efficient hub for natural gas.HubCo is located in Bunde, Germany – a regionwhere strategically important gas pipelines cometogether.

Producing gas together in the Arctic Circle

Success connects across national borders. This is

why BASF subsidiary Wintershall and the Russian

gas producer Gazprom are further extending coop-

eration, which has been successful since its incep-

tion 14 years ago. In 2003, they established the

Achimgaz joint venture to produce natural gas and

condensate in the Urengoy field in western Siberia.

The joint venture is one of the largest projects ever

undertaken by a German company in the Russian

Federation. The two partners each bring their own

strengths to the planned development of deposits

deep under the permafrost: Gazprom has extensive

experience in producing gas in Arctic areas.

Wintershall brings in many years of experience

in technically difficult deposits, especially those

involving horizontal drilling under challenging geo-

logical conditions. A peak of up to 8 billion cubic

meters of natural gas and up to 3 million metric

tons of condensate are expected to be produced

annually over a period of 40 years.

Further information and data atwww.reports.basf.de/oil+gas

Icy cold and permafrost: In Siberia,

employees of Wintershall and

Gazprom work under extreme

conditions.

Oil & Gas Economic Results and Perspectives

32 | BASF 2003

Economic Results and Perspectives Research and Development

Our central technology platforms in Ludwigsha-fen combine BASF’s know-how. They form thecore of our Research Verbund together with ourglobal research facilities and our subsidiaries.Worldwide, approximately 7,500 employees workin research and development at BASF. In addi-tion, we are currently involved in about 1,100

cooperations worldwide, which provide our re-search activities around the world with impulseson market needs and technology trends.

Innovations for successful customersWe want to provide product innovations and

system solutions that contribute to ourcustomers’ success and to profitable growth forBASF. Automotive manufacturers are very inter-ested in an innovative concept for the thermalencapsulation of car engines from our subsidiaryElastogran. Cooling of the engine can be delayedby surrounding it with a polyurethane foam. Ittherefore remains warm and ready for the nextstart for trips around town and other short jour-neys. The potential: a reduction in fuel consump-

tion of up to 9 percent. We are currently workingwith a well-known automotive manufacturer onpreparations for the construction of a prototype.

The example of biocatalysis shows how weuse scientific knowledge and the opportunities oftechnological change and how we include envi-ronmental aspects at an early stage. Biocatalysisis a process in which microorganisms or isolatedenzymes are used to manufacture products onthe basis of renewable raw materials such as soy-bean oil. It offers an energy and resource-savingalternative to multistep chemical syntheses. Weuse this technology, for example, to produce ourChiPros® product range: These molecules occurin two forms that are non-superimposable mirrorimages of one another, of which only one formhas the desired effect in the final product. Thanksto our innovative biocatalytical processes, we areable to supply our customers in the pharmaceuti-cals industry with only the active form. Plant biotechnology is another focus of research atBASF and you can read more about this topic onpage 29.

Innovations for Profitable GrowthWe want to offer our customers economically successful solutions and products. Our research and develop-ment activities therefore aim to implement market trends and scientific ideas quickly. We use our strong net-work of creative employees and productive cooperations between our research units, operating divisions andexternal partners from science and industry to the advantage of our customers. In parallel, we increase ourcompetitiveness by continuously developing our production processes.

2002 2003

1,135 1,105

Research anddevelopment expensesMillion €

BASF 2003 | 33

Öl und Gas Wirtschaftliche Ergebnisse und Perspektiven

Tapping into new business areasOur subsidiary BASF Future Business con-

centrates on recognizing chemistry-based solu-tions in areas that lie outside the scope of BASF’sexisting operations and turning them into attrac-tive businesses. The construction, textile and au-tomotive industries, for example, have longdreamed of self-cleaning surfaces that staycleaner for longer. By utilizing the potential of-fered by nanotechnology we are now launching a product that grants this wish in the form ofmincor™. The new product creates nanostruc-tures on surfaces, making them water and dirtrepellant. BASF Future Business is also devel-oping high-performance components for newenergy systems such as fuel cells as well as long-lasting, brilliant pigments for use in the nextgeneration of displays.

Ensuring competitiveness through processinnovations

We use innovative methods to improve ourproduction processes, making them more effi-cient and reducing costs. In July 2003, for exam-ple, we therefore signed an agreement with Dowfor the joint development of an innovative manu-facturing process for propylene oxide (PO). Forthe first time, we want to produce this key pre-cursor for polyurethanes, solvents and surfac-tants on the basis of propylene and hydrogenperoxide (HP). Unlike current technologies, theonly by-product is water. The first world-scaleplant using the HPPO process is scheduled tostart operations in 2007 at the earliest.

Seeing the market throughour customers’ eyes

Until now audio furniture has never really been a

single color: Cut edges, drill holes and scratches

always revealed the original light color of the fiber-

board. Together with manufacturers of wood com-

posites, BASF experts have developed an innova-

tive solution that will mean that people will be able

to enjoy the appearance of their furniture for years

to come. Our new pigment preparations can be

used to through-color medium density fiberboard

(MDF) in black, blue, green or red. The wood fibers

are still clearly visible and give the boards a natural

appearance. And like solid wood, the boards can

be refurbished again and again. Our customers in

the wood products industry benefit from our unique

expertise in the area of colorants and glues and

from our Know-how Verbund: Only the pigment

preparations developed by BASF meet customer

requirements because they are easy to mix with

glues and penetrate wood fibers well.

Through-coloredfiberboard can beprocessed like solid wood.

Experts for all shades of automotive coat-

ings: Renate Weber (left) and Michaela

Finkenzeller, color designers at BASF

Coatings AG.

Mobility Thanks to Solutions from the Chemical Industry

Economic Results and Perspectives

34 | BASF 2003

tion times, and at the same time improve thequality of the product and create something com-pletely new.” This integrated approach appliesnot only to day-to-day business but also to thedevelopment of system solutions. For example,the U.S. automaker General Motors has a centralcontact at BASF for all of its questions.

Comfort, safety and looksVirtually all makes of cars produced today

contain BASF products. In the interior, polymersgive dashboards and steering wheels that sportyor elegant touch and help make driving a plea-surable experience. The things that make a bigdifference are not necessarily noticeable at a firstglance. Take polyurethane-based Cellasto damp-ing systems for example. They deserve credit forminimizing unpleasant vibration and noise.That’s why nine out of 10 automobile manufac-turers opt for this system, which allows a preci-sion fit between chassis and body. BASF’s highperformance polymers can do a lot more. Theycan easily tolerate heat, cold and mechanicalpressure in engines or gearboxes. “Ultramid®

can withstand lubrication oil at temperatures ashigh as 140C (284 F), that’s why we used thismaterial for the gearbox of a newly developedtransmission control module installed in modelssuch as the BMW 7 series and S-type Jaguars,”says Thomas Laux, head of Bosch’s TransmissionControl department. Solutions from the chemical

Mobility thanks to solutions from the chemi-cal industry

The conveyor belt inches its way forward asfreshly painted car bodies pass by one by onealong the assembly line. Assembly workers fitdoors, and robots install the cockpit a little furtherdown the line. The appearance of the finished caris specified in the assembly instructions attachedto the underside of the open hood. Whether it’spale leather seats, a global positioning system ora sporty steering wheel – major manufacturersoffer their customers a choice of more than onemillion different permutations. And customersare fussy, too. They want a car that’s safe andcomfortable, looks good, requires little mainte-nance and has good mileage. That’s not surpris-ing because owners spend such a great deal oftime in their cars. Statistically, every Germandrives approximately 11,000 kilometers (6,820

miles) a year, and the number for the UnitedStates is even higher at almost 15,000 kilometers(9,300 miles). To ensure that car owners get whatthey want, teams at BASF develop innovative andenvironmentally friendly solutions in cooperationwith partners from the automotive industry.

Identifying customers’ needs“Through projects with major customers, we

get to know their needs down to the last detail,”says Raimar Jahn, head of BASF’s PerformancePolymers division and chairman of the Automo-tive Steering Committee – a platform at BASF

that combines activities involving the automotiveindustry. “Our goal is to team up with customersto cut costs, accelerate development and produc-

BASF 2003 | 35

BASF and the automotive industry Every new car sold today contains chemical products – coatings, plastics and additives – worth approximately €750.

Products for the automotive industry accounted for more than 10 percent of BASF’s sales in 2003. Automotive industry

suppliers currently make up one-third of growth in the automotive industry, and this figure is rising.

36 | BASF 2003

ecoefficiency analysis. “These are important as-pects particularly in the growing Asian market,where most of the fuel currently sold contains no additives,” says Dr. Ulrich Kanne, head ofmarketing and product development for perfor-mance chemicals for the automotive and oil in-dustry. In Beijing, BASF plans to establish anengine test facility together with the ChineseResearch Academy of Environmental Sciences (CRAES) to analyze and improve gasoline gradesin China.

Lightweight construction saves resourcesCustomized fuels are not the only way of

reducing consumption: The vehicle’s weight isanother crucial factor. According to a rule ofthumb, reducing a vehicle’s weight by 100 kilo-grams (220 pounds) cuts fuel consumption by0.35 liters (0.1 gallon) per 100 kilometers (62

miles). Using plastics in automobile constructiontherefore also makes sense from an environmen-tal point of view because they are much lighterthan steel components. According to calculationsby experts, the use of approximately 14 percentplastic in cars saves more than 400 million liters(104 million gallons) of fuel in Germany everyyear.

Half the weight, all of the safety“Materials like Ultratect® with a lightweight

core and stable outer layers enable us to buildlighter cars while maintaining a high safety stan-dard,” says Dr. Dietrich Scherzer, from BASF’spolymer research unit. This principle has alreadygone into serial production in the shape of theBMW M3 CSL sports car. BASF polymer expertsteamed up with AC.S from Wilhelmsdorf nearNuremberg to design the central portion of therear seat backrest as a sandwich construction.

industry also help to enhance road safety. Brakefluids, airbags and highly complex steering elec-tronics would be unthinkable without them.

But even when there are no further ques-tions regarding technology and performance,buying a car is still a matter of individual taste inone respect: the color of the paintwork and inte-rior fittings. BASF designers keep their fingerson the pulse by scouting out trends and develop-ing colors for the upcoming seasons in close con-sultation with automotive industry experts fromEurope, Asia and North America.

Chemistry delivers sustainable solutions“For us, developing sustainable solutions

for the automotive industry also means addingvalue on a lasting basis for manufacturers andmotorists,” says Raimar Jahn. “Our innovativeproducts and efficient processes focus on themost logical approach, namely reducing fuel con-sumption and emissions.” Analysis of a vehicle’senergy consumption throughout its lifetimeshows that 87 percent of energy is used while onthe road; most of the remainder is accounted forby the production of materials and the vehicle it-self.

Smooth driving, lower emissionsFuel additives from BASF combine cost ef-

fectiveness with environmental protection. Theyprotect engine parts that are exposed to heat andkeep them clean, prolonging their lifetimes andminimizing maintenance. At the same time, fuelconsumption is reduced. Emissions of volatilehydrocarbons, carbon monoxide and nitricoxides are also reduced by 20 percent. This wasdemonstrated in a fleet test performed in cooper-ation with a global customer. The advantages offuel additives were also confirmed by a BASF

The use of innovative materials in car bodies is one of the most important technological changes.

Studies indicate that by 2010 cars will have a plastic content of 19 to 20 percent compared with

13 to 15 percent today.

Economic Results and Perspectives

BASF 2003 | 37

The new component weighs just half as much as conventional steel structures, yet performsequally well in crash tests. “Thanks to the Ultra-tect® foam core, the rear seat rest absorbs moreenergy on impact,” says Dr. Herbert Börger,managing director of AC.S, explaining why hechose this polymer. And there’s an additionalbenefit: BASF has developed an environmentallyfriendly and cost-effective manufacturing pro-cess for the production of larger quantities ofUltratect®.

Car body parts made of plasticThe aim of paintless film molding (PFM®)

process is to produce entire car body parts out ofplastic that do not require subsequent coating.Coated or dyed polymer films ensure that theplastic exterior car bodies are indistinguishablefrom their steel counterparts. Films of specialBASF plastics are molded exactly to the shaperequired by the customer, and specially devel-oped plastics are then injection-molded on to theback. Take the example of the MCC Smart: Itsroof is the first large exterior body part in whichareas of glass and plastic components appear tobe made in one piece. The plastic roof also helpsto reduce weight because it is half the weight ofa comparable steel component. PFM® brings automobile manufacturers a step closer to theirgoal of achieving a high quality plastic car bodythat is suitable for mass production. For thisachievement, BASF and its partners wereawarded the Plastics Innovation Prize by theGerman Association of Engineers (VDI) in 2004.

Efficient coating processes benefit manufac-turers and the environment

Optimized processes are also helping to revolutionize automotive coatings because they

combine economy and ecology. “As a systemsupplier, we do more than simply providing man-ufacturers with the coating materials they need.In fact, our objective is to be the ‘zero head-aches’ solution provider. For example, we alsoperform tasks ranging from materials planningand quality assurance to lab work,” says RainerBlair, head of Automotive Coatings North Amer-ica. “In collaboration with manufacturers, thisgives us the best possible control of quality andcost.”

Another characteristic of system partner-ships is a cost-per-unit invoicing system wherebycustomers pay for each perfectly coated autobody, rather than for the amount of product theyuse. Suppliers and customers have a commongoal – to save materials and thus costs throughintegrated coating processes that are constantlybeing improved. Our newest development makesit possible to eliminate one of the primer layerswhile maintaining quality and without having toalter the paint shop.

The environment also stands to benefit, asthe system cuts the amount of product used by20 percent, thus helping to reduce coating wasteand residues. The coatings themselves have alsobecome gentler on the environment in recentyears. For example, BASF has developed solvent-free and heavy metal-free products. BASF’s waterborne coatings now have only 15 percentthe solvent content of conventional coatings,while its zero-emission coatings are almost entirely solvent-free.

BASF is now the leading system supplier forautomotive coatings. Twenty production plantsoperated by eight automotive manufacturers inEurope, the Americas and Japan work with BASF

according to this principle, the latest examplebeing VW’s facility in Puebla, Mexico.

38 | BASF 2003

BASF’s eco-efficiency analysis looks at aproduct’s entire lifecycle – from raw materialextraction to recycling or disposal. It focuses onthe customer’s point of view and compares appli-cations that offer the same benefit. The eco-efficiency analysis determines a product’s envi-ronmental profile by investigating the followingcategories: consumption of resources and en-ergy, emissions to air, water and soil as well asany risk potential. In addition to environmentaldata, we also identify the overall costs of alterna-tive products over their entire lifecycle. The dataare then plotted on a graph known as an eco-efficiency portfolio that shows at a glance whichof the solutions is best in terms of both costs andenvironmental burden.

Clear basis for assessment for our customersand ourselves

The results help us to improve products andprocesses by showing us what points need to beoptimized to achieve a particularly good resultfor the environment and what commercial conse-quences these involve. If a product turns out tobe neither eco-efficient nor improvable, we lookfor alternatives.

We also deploy the analysis to back up strategicdecision-making. When R&D targets need to bedrawn up and reviewed, it helps us to understandthe different ways of enhancing a product or pro-cess. And we also utilize the tool when investingin new plants and making site decisions. Theanalysis can also be used to evaluate complexenvironmental policy strategies such as the Ger-man deposit system on disposable packaging orthe liberalization of waste management.

The eco-efficiency analysis means that ourcustomers can understand the implications at aglance. The results enable them to see the envi-ronmental and commercial advantages of ourproducts and processes, which is why we are increasingly using this tool on behalf of our customers. Of the 200 eco-efficiency analysescarried out by BASF experts since 1996, morethan 100 have been collaborative ventures withcustomers or partners of associations and institu-tions.

BASF’s Eco-efficiency Analysis Our eco-efficiency analysis helps us develop economical solutions that at the same time burden the environ-ment as little as possible – this is good for our customers and ourselves, which is why we are increasingly being commissioned by customers to conduct eco-efficiency analyses for them as well as developing softwareto enable this complex tool to be deployed in everyday working situations.

Higheco-efficiency

Costs

Env

iro

nmen

tal b

urd

en

Eco-efficiency portfolio:Comparision of threehairspray formulations from Wella

Loweco-efficiency

1.6 1.0 0.4

1.0

1.6

0.4

1

2

3

Economic Results and Perspectives Eco-efficiency Analysis

BASF 2003 | 39

A growing network of experts A growing number of experts deploy and

fine-tune our eco-efficiency analysis tool, bothinside and outside BASF. This is why training byBASF’s eco-efficiency specialists and exchangingexperience within this network is so important.Institutions now using this method include theInstitute for Applied Ecology in Freiburg, Ger-many; the University of Karlsruhe, Germany; theNetherlands Organization for Applied ScientificResearch (TNO); and the United Nations Indus-trial Development Organization (UNIDO).

Eco-efficiency analysis at the click of amouse

In 2002, we developed an “eco-efficiencymanager” known as Ecologistix together withrepresentatives from industry, politics and sci-ence. This is a software program for a specific

field of application that can answer customerqueries swiftly and economically. As a result,small and medium-sized companies can now also easily incorporate the eco-efficiency analysisinto their everyday operations.

BASF’s logistics staff use Ecologistix to cal-culate the best transport system for goods. Usinga simple data input screen, detailed environmen-tal data are combined with all relevant customer-specific information on shipment. Ecologistixthen determines the best transportation route forthe customer. It also calculates carbon dioxideemissions and shows how choosing an alterna-tive route can reduce greenhouse gas emissions.As a result, we can help our customers achievetheir environmental targets. Several Ecologistixprograms are being used today by BASF, by cus-tomers and by partners.

Giving hair body and shine – the eco-efficiency way

Whether curly or straight – Wella’s hair care product

developers create hair dye and perm products as well

as care and styling products for every type of hair. In

order to find out which hairspray formulation is both

particularly economical and environmentally friendly,

Wella conducted a BASF eco-efficiency analysis that

looked at three alternatives with differing active ingre-

dients, amounts and types of propellant. This enabled

Wella to identify the formulation that was significantly

more economical and environmentally sound. The eco-

efficiency analysis is a key tool for Wella – aiding

decision-making and promoting product stewardship.

In the future, Wella plans to use BASF’s method

for selected products and integrate it into product

development.

Comparing the use ofhairspray formulations.

Eco-efficiency Analysis Economic Results and Perspectives

Acting responsibly and reducing risks – that’s

also the motto of Massimo Assenza (left) and

Frank Roth.

Environmental Protection and Safety

We are actively involved in all political discussions within the European Union.

Topics we are currently addressing are:

European chemicals policy (REACH)The goal of the future E.U. chemical legislation is toincrease protection of people and the environmentwhile simultaneously improving the competitiveness ofthe chemical industry in Europe. We support this goalwholeheartedly. We are, however, very concerned bythe draft legislation passed in October 2003 because it does not take sufficient account of effects on theindustry. Implementation of this draft will permanentlyimpair the industry’s competitiveness in Europe. Youcan read more detailed information on our position atwww.basf.de/chemicals_policy.

Emissions tradingThe Kyoto Protocol was the first international treaty todefine goals to reduce emissions of CO2 for the signa-tory states. BASF is committed to the project-relatedflexible mechanisms envisaged under the Protocol(clean development mechanisms, joint implementation)to achieve the targeted reductions and supports emis-sions trading at the state level. However, we continue totake a critical view of locally limited emissions tradingat the company level as proposed by the E.U. directive.Emissions trading in the E.U. will start in 2005 and wewill have to adapt accordingly. Further information isavailable at www.basf.de/emissions_trading.

Integrated Product Policy (IPP)The key objective of the green paper on IntegratedProduct Policy of the European Commission ofFebruary 2001 is to improve the environmental impactof a broad range of products throughout their lifecycles.We fundamentally support the IPP goals, although theindustry needs flexibility if it is to implement them suc-cessfully.

SCALESCALE is an initiative of the European Commission toraise awareness for children’s health and the environ-mental factors that endanger health. The initiative aimsto reduce these factors. Experts from throughoutEurope are developing an action plan that is to be pre-sented at the Ministerial Conference on Environmentand Health in June 2004. BASF is also involved in vari-ous working groups.

BASF 2003 | 41

In all areas of Responsible Care®, we want toachieve concrete improvements against whichwe can be measured. For the first time in 2003,we published ambitious goals for environmentalprotection, product stewardship, occupationalsafety and distribution safety that we want toachieve by 2012. This report describes what proj-ects we carried out or started in 2003 with theaim of coming a step closer toward achievingthese targets. Our goals are long term, and port-folio measures such as acquisitions have to betaken into account. This means that we cannotreport identical developments every year.

Global management systemOur environmental and safety goals comply

with the principles of Responsible Care® – a vol-untary global initiative of the chemical industrythat BASF has committed itself to since 1992.Responsible Care® aims to achieve continuousimprovements in the areas of environmentalprotection, safety and product stewardship aswell as occupational safety, occupational healthand dialogue. A global network of experts man-age our activities in all these fields (see alsowww.basf.de/competence-center-rc). Thiscombines two important success factors: it allows freedom for regional diversity and makesit possible to implement global standards. Thenetwork extends to the regional level so that appropriate account can be taken of specific local needs. At the same time, we can work to-gether on long-term global standards. We havealready achieved this with regard to both theplanning and construction of new plants and thetransportation and storage of chemicals.

Continuous Improvement is our Goal BASF’s environment, health and safety projects are as varied as our sites. But they all share the same intention– continuously improving BASF’s performance in the field of Responsible Care®. Last year, we publishedglobal, long-term goals for the first time that show clearly and transparently what path we plan to take in thefuture.

Responsible Care Environmental Protection and Safety

42 | BASF 2003

We check where we can make improvementsWe perform regular audits at all our sites.

They are an important tool in our efforts to makeour sites and plants even safer, and they helpmake us a trustworthy partner for employees,neighbors, customers and public authorities.

On behalf of the Board of Executive Direc-tors, experts for safety, environment and occupa-tional medicine monitor all our sites and plants.Using clearly defined criteria they track how ourstandards are implemented locally. Environmen-tal and safety audits and occupational medicineaudits are conducted separately. The results arethen combined to give a comprehensive profilefor every site. Measures taken range from imme-diate improvements through to long-term proj-ects and are subject to follow-up audits.

During the 2003 reporting period, 61 envi-ronmental and safety audits were carried out at39 BASF sites. Occupational medicine and healthprotection audits were also conducted at 34 sites.

In 2003, we submitted our internal audit systemto a detailed review by experts from Deloitte &Touche. The goal of this voluntary measure is toachieve even more transparency in our dialoguewith the public. In their report, the reviewersstated that our system is fully functional andeffectively recognizes and reduces risks. We have taken up some of the suggestions from their report and implemented them effective January 1, 2004 (see www.basf.de/audits_e).

Externally certified sites Our internal auditing system meets the stan-

dards and criteria of today’s generally acceptedexternal auditing procedures. Nevertheless, wealso carry out external certification at the requestof our customers. For example, all of BASF’sNorth American sites that produce automotivecoatings have been certified according to envi-ronmental standard ISO 14001 since January2001. In summer 2003, two production plants forautomotive chemicals at our Ludwigshafen sitewere awarded ISO 14001 certification, allowingthem to cite the environmental standard in theiradvertising. And in 2002, BASF Corporation be-came the first chemical company to be awardedRC 14001 certification, a new environmentalstandard combining Responsible Care® and ISO 14001.

A list of sites certified according to ISO 14001 or EMAS can be found atwww.basf.reports.de/certified.

Checks ensure safety. Michael Hauck (left) and Frank Herrmann inspect a pipe in the isophytol plant in Ludwigshafen.

Environmental Protection and Safety Responsible Care

BASF 2003 | 43

BASF has achieved a lot in recent decades withend-of-pipe environmental technologies. Exam-ples include filters to reduce emissions and themore than 50 wastewater treatment plants weoperate worldwide. Many of our environmentalprotection measures, however, are at a much earlier stage of the production process duringthe development of products and processes.

Innovation-integrated environmental protection

Environmental protection plays a centralrole when BASF researchers develop new prod-ucts: A high-quality product must be environ-mentally compatible if it is to be accepted by ourcustomers. Economic efficiency and environmen-tal protection are therefore closely interlinkedwhen we develop innovative processes.

Our knowledge means that BASF’s special-ists are valued as partners in promoting environ-mentally friendly technologies in emerging econ-omies. In the summer of 2003, the Chinese Research Academy of Environmental Sciences (CRAES) – which is part of China’s State Environ-mental Protection Administration – and BASF

signed an agreement in Beijing for constructingand operating a joint engine test facility. This facility will investigate the quality of Chinese gasoline and take concrete measures to improveits quality. A key goal of the collaboration is toachieve a permanent reduction in traffic-relatedair pollution.

Production-integrated environmentalprotection

Along with the desired end products, chemi-cal processes usually also generate by-products.It pays to reduce or recycle these. Right from theplant planning stage we therefore pay special attention to ensuring that any by-products areavoided or optimally recycled. Wherever we can,we also improve existing processes, and not onlyour own but those of our customers, too. For ex-ample, we developed an optimized recycling pro-cedure for N-dimethylacetamide (DMAC), whichour customers use as a solvent in the productionof spandex fibers. The new procedure makes itpossible to recover DMAC in a high quality andat the same time minimizes solvent losses. Thefirst plants to use this principle are now operat-ing in Italy and we are planning others for ourAsian customers.

Efficient Processes for Companies andthe EnvironmentWhen developing and manufacturing our products, we rely on efficient processes. This pays off for the com-pany and the environment. We contribute to the success of the company by achieving higher product yields in our plants. That’s also easier on the environment: We use fewer resources and reduce both emissions andwaste.

Environmental Protection Environmental Protection and Safety

44 | BASF 2003

Using resources efficiently in our Verbundnetwork

At our Verbund sites we recycle resourcesand by-products particularly efficiently: Here, we network production plants, energy and wasteflows, logistics and infrastructure with one an-other. The system conserves resources by guar-anteeing low-energy and high-yield chemicalprocesses. Along with our Ludwigshafen site, weoperate another four Verbund sites worldwide. A fifth, in Nanjing, China, is under constructionand is expected to start operations in 2005.

Thanks to our Energy Verbund, we have suc-ceeded in cutting the volume of fossil fuels usedto generate steam at our Ludwigshafen site by 49 percent since the mid-1970s, while increasingproduction by 45 percent in the same period.Similar results have been achieved at our Ver-bund site in Antwerp. Today, BASF produces 426 percent more in Antwerp than it did in themid-1970s when the site was still under develop-ment. While electricity consumption has risen by 259 percent, the amount of fossil fuels used togenerate steam has fallen by 76 percent.

In 2003, 23.1 million MWh of fossil fuels and residual waste was used in central power plants to generate steam and electricity in the BASF Group.

As a result, 3.8 million MWhel of electrical power was generated, primarily by means of cogeneration technology. This corresponded to 31 percentof the BASF Group’s total electricity needs of 12.5 million MWhel in 2003. The remaining electricity was purchased from public networks.

In 2003, a total of 52.8 million metric tons of process steam was provided via steam networks within the BASF Group. Worldwide, 48 percent ofthis amount was generated by using excess heat from chemical reactions and by thermal recycling of waste.

Energy balance, BASF Group 2003

Excess heat 48%

Natural gas 16.5 million MWh = 71%

BASF Grouppower plants

Steam52.8 millionmetric tons

Waste and other 4.4 million MWh = 19%

Heating oil 1.6 million MWh = 7%

Coal 0.6 million MWh = 3%

Steam import 17%

Self-generated 35%

Self-generated 31%

Electricity

Grid import 69%

Electricity12.5 million MWhel

Steam

Environmental Protection and Safety Environmental Protection

BASF 2003 | 45

BASF is committed to the aims of the 1997 KyotoProtocol of reducing relevant greenhouse gasemissions. In recent years, we have already madea substantial contribution by introducing far-reaching measures: Between 1990 and 2002, wereduced greenhouse gas emissions per metricton of sales product by 61 percent. By 2012, wehave the long-term goal of reducing our specificgreenhouse gas emissions per metric ton of salesproduct by a further 10 percent compared with2002, while further expanding our global pro-duction capacities. To achieve this, we are carry-ing out specific long-term projects that will takeeffect in the next few years.

Initial successes are already visible: In 2003,we reduced greenhouse gas emissions per met-ric ton of sales product by 7.2 percent comparedwith 2002. The coming years will show to whatextent these projects can also confirm this posi-tive development in the long term. Emissions ofgreenhouse gases from BASF’s global chemicalsoperations totaled 23.8 million metric tons (2002:

24.7 million metric tons). Each of the variousgases has a different impact on the greenhouseeffect and so emissions are calculated in terms ofCO2 equivalent to allow a comparison.

2012 goal

Reduction of emissions to airReduction of greenhouse gases permetric ton of sales product: –10 %

Global partnership in theWorld Bank’s climate fund

Reducing emissions, gaining experience in green-

house gas trading and improving living conditions

in poorer parts of the world – these were the rea-

sons why BASF became the first German company

to take part in the World Bank’s Community

Development Carbon Fund (CDCF). Using funds

provided by governments and companies, the

CDCF will finance small and medium-sized projects

to reduce greenhouse gas emissions, in particular

in poorer developing countries. Only projects that

also improve the quality of life of the population

will be eligible for funding. The intention is for the

projects to be recognized as “clean development

mechanisms” (CDMs) under the provisions of the

Kyoto Protocol. In return, participants in the fund

will eventually receive certified emission rights for

greenhouse gases. The CDFC was launched with

a starting capital of $35 million to be spread over

a period of 15 to 17 years. BASF has agreed to

provide a total of $2.5 million in this period.

Environmental Protection Environmental Protection and Safety

46 | BASF 2003

We are relying on energy-efficient processes andstate-of-the-art technologies in order to meet ourlong-term goal. One example is the constructionof a second combined heat and power (CHP)

plant in Ludwigshafen, which we started in fall2003. The plant’s turbines will generate 3.5 times

more power per metric ton of steam than a con-ventional power plant. This means the plant willbe able to achieve an energy efficiency of closeto 90 percent, which will conserve resources andlower CO2 emissions by 500,000 metric tons peryear by 2006. A CHP plant recently started sup-plying our site in Tarragona, Spain, and similarplants are planned for BASF’s Verbund sites inNanjing, China, and Antwerp, Belgium. Oncethese projects have been completed, we will beoperating modern CHP plants at all sites wherethis is feasible, either independently or with part-ners.

Since 1997, we have reduced nitrous oxideemissions from adipic and nitric acid productionat a number of sites using a specially developedcatalyst. This makes it possible to reduce nitrousoxide emissions from nitric acid production byabout 70 to 80 percent and from adipic acidproduction by about 95 percent. And we aremaking further progress – a second, enhancedcatalyst recently went on trial at our Antwerpsite.

Even small measures help us to achieve ourglobal target. In spring 2003, we switched steamgeneration from heating oil to natural gas at oursite in Yokkaichi, Japan. This reduced CO2 emis-sions by around 1,400 metric tons compared withthe previous year. The new fuel can also be usedmore efficiently, which reduces energy costs.

Emissions to air from oil and gas productionEmissions from oil and gas exploration are

not included in our targets because the develop-ment of new oil and gas fields makes them hardto predict. We nevertheless include these emis-sions in our reporting to ensure transparency.

Emissions of greenhouse gases from oil andgas production totaled 2.1 million metric tons in2003 (2002: 1.9 million metric tons). They arereported in terms of CO2 equivalent. Emissions of air pollutants amounted to 13,700 metric tons(2002: 9,200 metric tons). As a result, oil and gasproduction is responsible for 14 percent of theBASF Group’s emissions.

2003

Percent

– 7.2%

2002

20 40 60 80 100

CO2

N2O

CH4

HFC**

PFC**

SF6

Total

1

310

21

140 – 11,700

6,500 – 9,200

23,900

18,960

4,788

10

36

0

0.6

23,795

18,236

6,407

10

61

0

0

24,714

20032002GWP factor*

Emissions of greenhouse gases (Thousand metric tons of CO2 equivalent/year)

* GWP factor: global warming potential of the individual gases com-

pared with CO2** Calculated using the GWP factors of the individual components

(IPCC 1995)

Reduction of greenhouse gas emissionsPer metric ton of sales product

Environmental Protection and Safety Environmental Protection

A new cogeneration power plant is tostart operations at our Verbund sitein Antwerp in mid-2005.

BASF 2003 | 47

By 2012, we want to reduce the volume of airpollutants from our chemical plants by 40 per-cent compared with 2002. Air pollutants includeinorganic gases such as carbon monoxide, sulfurdioxide, nitrogen oxides, NH3 and other inorgan-ic compounds, dust, heavy metals and volatile or-ganic compounds (NMVOC). In 2003, emissionsof air pollutants from BASF’s chemicals opera-tions totaled 81,800 metric tons (2002: 85,600

metric tons) worldwide. Emissions of heavy met-als totaled 5 metric tons (2002: 5 metric tons),while ozone-depleting substances as defined bythe Montreal Protocol amounted to 180 metrictons (2002: 229 metric tons).

In 2003, we were able to register initial successes in this area too: We reduced emissionsof air pollutants by 4 percent compared with2002.

By 2012, we want to reduce emissions of bothnitrogen and organic substances to water by 60 percent and heavy metal emissions by 30 per-cent compared with 2002.

In 2003, BASF discharged 175 million cubicmeters of wastewater worldwide. Direct emis-sions of organic substances – calculated aschemical oxygen demand (COD) – amounted to94,200 metric tons (2002: 91,500 metric tons).Emissions of nitrogen (N total) and phosphoruswere 20,400 metric tons (2002: 22,300 metrictons) and 490 metric tons (2002: 500 metrictons), respectively. Fifty-five metric tons of heavymetals (2002: 61 metric tons) were emitted inwastewater. In addition, 7.8 million cubic metersof wastewater with a COD content of 6,500 met-ric tons were piped to external wastewater treat-ment facilities.

We have also come a step closer towardachieving our goals for heavy metal and nitrogenemissions: Compared with 2002, heavy metalemissions declined by 10 percent and nitrogenemissions by 8.5 percent. Emissions of organicsubstances (COD) increased by 3 percent. Thiswas due to an increase in production at our sitein Gunsan, South Korea, and a corresponding rise in the amount of fermentation residues emitted.

2012 goal

Reduction of emissions of air pollutants: –40 %

2012 goal

Reduction of emissions to waterNitrogen: –60 %Organic substances: –60 %Heavy metals: – 30 %

To meet our long-term targets in this field,we are currently working on a variety of projects,for example thermal treatment of flue gas.

2003

2002

2001

2000

1999

SO2

NMVOC**

DustNOx*

** NOx = Sum of NO2 and NO, calculated as NO2** NMVOC = Non-methane volatile organic compounds

CO

10 20 300

NH3/otherinorganics

40 50 60 70 80 90 100

– 4%

Emissions to airAir pollutants, thousand metric tons per year

Environmental Protection Environmental Protection and Safety

48 | BASF 2003

We plan to contribute to our goals using far-reaching measures. Last year, for example, wetested a process for reducing emissions at theGunsan site. We plan to extend the process tothe entire plant in 2004 with the aim of reducingnitrogen emissions at the site by 40 percent andthe COD content of wastewater by 30 percent by2005.

A new process known as nitrification, whichhas been used at our Ludwigshafen wastewaterplant since September 2001, is also making animportant contribution to reducing nitrogenemissions. By using microorganisms that breakdown nitrogen compounds in water, we havebeen able to more than halve our annual nitrogenemissions to the Rhine River. In 2003, nitrogenemissions amounted to 1,250 metric tons of am-monia nitrogen, whereas in 2001 they were ashigh as 3,500 metric tons. This demonstrates

that we are successfully meeting the voluntarycommitment we made in 1995 (when emissionsstood at 4,500 metric tons) to lower our ammonianitrogen emissions to the Rhine River by 50 per-cent.At our site in Freeport, Texas, we have been concentrating dilute nitric acid generated as aby-product to yield a marketable product sinceJune 2003. As a result, we reduced nitrogenemissions to the Brazos River by 50 percent to850 metric tons in 2003 and reduced our annualcosts by more than $1 million. BASF has invested$8.5 million in this voluntary recovery program.

BASF’s water requirements worldwide totaled 1,880 million cubic meters in 2003

(2002: 1,890 million cubic meters). Informationon individual substances emitted to air or watercan be found at www.basf.de/emissions_lists.

Waste management Worldwide, BASF produced approximately

1.5 million metric tons of waste in 2003 (2002:

1.61 million metric tons). Oil and gas explorationaccounted for 45,500 metric tons. Building rub-ble now accounts for the large majority of wasteat BASF; the remainder consists of productionwaste, industrial waste resembling householdwaste and sewage sludge. Around 32 percent ofour waste was recycled or subjected to thermalrecovery. The remainder was disposed of by in-cineration (71 percent), landfilling (19 percent)or underground storage (10 percent). In line withthe customary international categories, 330,000

metric tons of the waste we disposed of was clas-sified as “hazardous” and 690,000 metric tons as“non-hazardous.”

Environmental protection costsThe costs of operating environmental pro-

tection facilities throughout the BASF Groupamounted to €667 million in 2003. In the sameperiod, we also invested €159 million in new andimproved environmental protection plants andfacilities. These capital expenditures cover bothend-of-pipe measures and production-integratedenvironmental protection measures.

In 2002, we included a former acquisition in Gunsan, South Korea,in our reporting for the first time. This explains the increase inemissions for 2002 and 2003.

COD Nitrogen

2003

2002

2001

2000

1999

200 40 60 80 100 120

Thousand metric tons per year

+ 3% – 8.5%

– 10%

Heavy metals

2003

2002

2001

2000

1999

0 10 20 30 40 50 60 70 80

Metric tons per year

Emissions to water

Further data atwww.reports.basf.de/environment2003

Environmental Protection and Safety Environmental Protection

BASF 2003 | 49

Key data are available for close to 90 percent ofthese substances as a result of the voluntarycommitment made in 1997 by the German Chem-ical Industry Association (VCI) for Germany. Weare now working to complete the data for the re-maining substances. This will involve products inAsia and the United States as well as substancesresulting from portfolio changes and acquisi-tions.

Information available worldwideUniformly structured data records help us

to identify where our data are incomplete and tofill these gaps. All BASF experts and the relevantauthorities have access to our substance assess-ments. We also provide our customers with thisinformation: They receive safety data sheets sothey can familiarize themselves with the productsand their properties and in this way learn how to avoid risks. Our safety data sheets are nowavailable in 15 languages, and further languageversions are planned. Using the local language is also extremely important for hazard warningson product labels: In the European region alone,BASF product labels are translated into 19 lan-guages. In an emergency, our customers andpartners can obtain information on our productsaround the clock using the hotline system wehave established worldwide.

Environmental and toxicological testing Before new chemical substances come on

to the market, we subject them to comprehensiveenvironmental and toxicological testing and ap-ply for registration with the appropriate author-ities. When necessary to comply with legal andregulatory requirements we use animals to testchemical substances. Such studies serve toreduce possible risks to humans and the environ-ment. BASF is committed to the ethical princi-ples of animal protection. This is why we avoidanimal studies and use alternative methodswherever possible and permitted by law. We are involved in developing alternative methodsthrough a number of international committees.

We advise and support our customers Along with detailed information on product

safety, we offer our customers even more: Train-ing for their employees, suggestions for improve-ments and eco-efficiency analyses (see pages 38

to 39). Since 2003, BASF offers its customers inThailand monthly training sessions on how tohandle products safely. In Australia, BASF drewup a safety concept for a customer in the paperindustry in 2003 and helped the company toimplement it. Australian customers are also reg-ularly invited to employee training sessions inareas such as safety and the handling and storageof hazardous goods, and are offered specialtraining at their own premises.

Greater Knowledge Means Greater Safety Knowing the impact of our substances means safety – for customers, end users and the public. This is why weprovide detailed information about our products. And we want to become even better in this area.

2008 goal

By 2008, we want to extend our dataeven further so that we will have allrelevant information on all substancesthat we handle worldwide in volumes of more than 1 metric ton per year.

Product Stewardship Environmental Protection and Safety

50 | BASF 2003

In 2003, the BASF Group’s lost time accident ratewas 2.4 per one million working hours (2002:

3.3), bringing us significantly nearer to our tar-get: We reduced the number of accidents by 27

percent. Unfortunately, one contract companyemployee died in 2003.

Local safety programs In order to promote safety awareness and

reduce risks to a minimum, we focus on localprograms and measures developed and imple-mented according to the particular needs of the individual site. Employees with managerialresponsibility play a key role here. We expectthem to act consciously as role models.

In Thailand, BASF has employed monthlytraining sessions and reviews since 2003 to pro-mote a working atmosphere in which each em-ployee is accountable. The aim is for all employ-ees to structure their workplace conscientiouslyand therefore safely. BASF has also drawn up astandardized safety analysis in Yeosu, South Korea. All working processes are reviewed atregular intervals. The system, introduced inMarch 2000, enables risks and potential weak-nesses to be identified and eliminated. At BASF

Styrenics in India all new employees receive specific training. Since 2003, they are also givena special handbook that provides informationabout Responsible Care® – from training mea-sures to responsibilities.

Alongside workplace safety, we also focusclosely on road safety. In 2003, for example, we

made it mandatory for cyclists to wear helmets atour Ludwigshafen site. This is intended to avoidhead injuries in accidents involving cyclists andto encourage our employees to wear a cycle hel-met when cycling in their leisure time.

Safety for partner companies We want all employees from contract com-

panies at our sites to work safely at all times, andthis is why we are systematically integratingthem into our safety procedures. In 2003, BASF

PETRONAS Chemicals introduced a handbookfor contract company employees at its site inKuantan, Malaysia. It explains what to do in anemergency, describes the risks that can occur in everyday work and gives advice on how toavoid them. We also provide financial incentivesto safety-conscious contract companies. OurLudwigshafen site introduced a merit-ratingsystem in 2003 (see page 52).

Taking Responsibility Safety comes first. It is the foundation for the trust that employees and the public place in us. We have there-fore set ourselves the ambitious target of reducing our lost time accident rate – the number of working dayslost through injuries per one million working hours – by 80 percent worldwide by 2012 compared with 2002. We can best achieve this if all employees take responsibility for themselves and for their colleagues.

10 2 3 4 5

– 27%

1999

2000

2001

2002

2003

Lost time accidents (> 1 day)Per million hours worked

Environmental Protection and Safety Occupational Safety

BASF 2003 | 51

In 2003, there were 0.56 transportation accidentsper 10,000 shipments. This figure is based on theaccidents reported to us by our logistics part-ners. Over the past few years, we have encour-aged our carriers to develop awareness for theneed for transparency. This enabled us to furtherimprove our database and publish reliable globalstatistics for the first time in 2003. Accidents areassessed according to the five criteria of theEuropean Chemical Industry Council (CEFIC):deaths/injuries, leaks, extent of damage, disrup-tion to public life and media response.

The BASF Transportation and DistributionSafety Guide, which lists our globally binding cri-teria for the transportation and storage of chemi-cal products, forms the basis for all our mea-sures. Our global network of distribution safetyofficers also plays a key role. We have estab-lished this function throughout the BASF Groupeven though it is not mandatory outside Europe. Distribution safety officers ensure that nationaland international regulations are observed for allshipments. In the event of an accident, the distri-bution safety officers collect and evaluate all thenecessary information. We use these reports todevelop strategies for avoiding similar accidentsin the future.

Training and safety checks We want to achieve our goal by working

even more closely with our logistics partners. Todo this we use the Safety and Quality AssessmentSystem – SQAS (see page 62) – as well as train-ing measures for our employees and carriers.

Last year, we trained distribution safety offi-cers in six Eastern European countries with theaim of integrating them more closely into ourEuropean network. They were given further in-depth training at a Ludwigshafen forum on distri-bution safety. The event was also attended byexternal European logistics partners for the firsttime, with the intention of raising awareness forour standards through joint safety training andexchange of information.

Along with well-trained employees and part-ners, safe transportation routes are also impor-tant. In 2003, our Malaysian joint venture BASF

PETRONAS Chemicals began reviewing all keyroad routes in order to suggest ways of mini-mizing risk to the appropriate authorities. Todate, routes between Malaysia, Thailand andSingapore have been reviewed.

Responding swiftly to accidents If an accident occurs while chemicals are

being transported, a swift and appropriate re-sponse is essential. This is why we belong to net-works that supply information and help in emer-gencies. These include the German TransportAccident and Emergency Response System (TUIS) and the International Chemical Environ-mental (ICE) initiative. In addition, we have es-tablished a global network of emergency contactnumbers and control centers that we plan to expand. These systems exist primarily in Europeas well as in North and South America, and areoptimized through regular training exercises. We are also working to establish these networks

Safe Transportation on all RoutesWe want to ensure safe transport, handling and storage of our products. We aim to reduce the rate of transpor-tation accidents per 10,000 shipments by 70 percent by 2012 compared with 2003. We want to achieve thisthrough reliable logistics partners, global standards and an effective organization.

Distribution Safety Environmental Protection and Safety

52 | BASF 2003

Safe transportation to our customers What our customers expect from our logis-

tics system is easy to sum up: They want theproducts they have ordered to be delivered punc-tually and in the correct amount and quality. Toachieve this, high safety standards must be ob-served by the carriers who transport our goods –most of whom are independent. Our comprehen-sive safety tool is the Safety and Quality Assess-ment System (SQAS), a standardized assessmentsystem jointly developed by members of the Eu-ropean Chemical Industry Council (CEFIC). Weuse SQAS reports to identify staff training levels,response times during emergencies, vehicleequipment and whether carriers have securityplans in place. Only if we are sure that a trans-port company meets all requirements do we trustit with our products.

We evaluate and support partner companies Much repair, installation and transport work

at BASF is carried out by contract companies.Many external companies perform such servicesfor us at our sites. They act as our partners in thesearch for the best solutions. This is why allBASF companies and joint ventures in which wehold a majority share are committed to assessingand promoting the work of partner firms. Ourglobal guidelines on safety, health and environ-mental management make no difference betweencontract workers and BASF employees when itcomes to checking compliance with all regula-tions, carrying out training and assessing its success.

To further promote safety awareness atpartner companies, BASF Ludwigshafen’ssite management introduced a merit-ratingsystem for work carried out by contract compa-nies in 2003. If a contract worker breaches oneof BASF’s safety regulations, the contractcompany’s agreed bonus will fall by a certainpre-determined percentage.

Local measures like this are intended to en-courage safety awareness at partner companies(see also page 50), and we now aim to promotethese measures more vigorously worldwide.

Acting Responsibly in our Supply ChainHow carefully do carriers handle BASF’s products? Under what conditions do BASF’s technical partner compa-nies work? How safe are our suppliers’ products and processes? More and more customers and investors areasking us these questions, and we have a clear answer: What counts for us is acting responsibly throughoutthe entire supply chain because we want to build stable and sustainable relationships with our business part-ners. This is why we choose carriers, service providers and suppliers not just on the basis of price, but alsoinclude their performance in the fields of environmental and social responsibility when making our decisions.

Environmental Protection and Safety Supply Chain

We ensure safe transportation togetherwith our partners – for example whenfilling tanker trucks.

BASF 2003 | 53

Raw materials suppliers checked locally Last year, BASF purchased more than

10,000 raw materials worth around €9 billionfrom approximately 5,000 different suppliers foruse at its production sites worldwide. Employeesin our Raw Materials Purchasing departmenthave another responsibility: They carry out on-site product and supplier assessments.

Product types and sources importantAll raw materials we purchase are classified intoone of three hazard categories according to theirenvironmental, toxicological and safety proper-ties: A (safe), B (harmful) or C (e.g., toxic). Forexample, sodium chloride, more commonlyknown as table salt, would be category A. Ethanol, which is the alcohol in alcoholic bever-ages, is classified as highly flammable, therefore category B. Methanol, a toxic product, would becategory C.

Suppliers and potential suppliers are thenalso classified according to exactly defined crite-ria. Initially, we look at whether they are locatedin OECD countries or non-OECD countries. Thereason is that, as a first approach, the risk of non-compliance with environmental and safety stan-dards is expected to be higher in non-OECD

countries than in OECD countries. A final deci-sion however requires an actual plant audit.

Products/producers assigned a C3 ratingrepresent a potentially high risk and are subjectto particularly careful scrutiny. This means thatBASF employees from our purchasing organiza-tion, along with environmental, health and safety(EHS) experts, visit the supplier and carry out anEHS assessment to determine whether the sup-plier’s plant operates according to ResponsibleCare® standards (e.g., regarding wastewater treatment, maintenance, safety equipment, qual-ity control). If a potential supplier’s facilitiesmeet our requirements, the product/producer is upgraded to a C2 rating, which means we canbegin regular purchasing of raw materials fromthis enterprise.

Providing advice for better services In line with the Responsible Care® initiative,

it is an integral part of our philosophy that weprovide all our partners with information or offerthem advice to promote safety, health and envi-ronmental protection. In raw materials purchas-ing, for example, this means that we provide sup-pliers who do not have adequate standards withthe benefits of our expertise in order to minimizeany possible risks. Once suppliers meet our re-quirements, we can include their raw materialsin our purchasing program. It is crucial, espe-cially in our strategic growth markets, that wedevelop successful long-term supplier relation-ships along with our new sites. This is why weassessed and advised more than 60 new suppli-ers in Asia alone last year (2002: about 30).

Minimum social standards for suppliers Acting responsibly in our dealings with sup-

pliers also includes minimum social standards. In accordance with the United Nations’ GlobalCompact Initiative we insist that our suppliers do not employ children or use forced or bondedlaborers. Our procurement conditions also spe-cify that suppliers must comply with the Inter-national Labor Organization’s (ILO) employmentstandards.

Supply Chain Environmental Protection and Safety

Social Responsibility

Our sites are open to visitors: Mirelle

Numes from the Environmental Depart-

ment and fire officer Jefferson Ciciliato

receive a visit from a kindergarten class

at our site in Guaratinguetá, Brazil.

Sustainability Council

Board memberand eight division presidents

International Steering Committee Sustainability

Ten senior executives from various regions, units and functions

Sustainability Center

Project team 1 Project team 2 ...

Organization of sustainability managementin the BASF Group

BASF 2003 | 55

In 2001, BASF became one of the first companiesto establish a Sustainability Council. The Council,which is headed by the Vice Chairman of theBoard of Executive Directors Eggert Voscherau,ensures that the entire BASF Group is alignedwith the principles of sustainable development.The International Steering Committee Sustain-ability develops suitable strategies, proposesthem to the Sustainability Council and managestheir implementation worldwide using the appro-priate tools. A number of interdisciplinary globalproject teams report to the Steering Committeefor specific tasks.

The Sustainability Council and its commit-tees work closely with specialist units: For exam-ple, the Competence Center Responsible Careadvises the Sustainability Council in all questionsrelated to strategies for environment, health andsafety and on how to implement them (see alsopages 41 and 42).

You can find more information on our management structures for sustainability atwww.basf.de/sd-management_e.

Minimizing risks, measuring performanceA responsible approach to risk management

is a pre-condition for BASF’s continued existenceand long-term success and is therefore essentialto sustainable enterprise. We want to minimizethe risks inherent in our business activities andtherefore review our performance to ensure this.For example, we perform comprehensive auditsat all our sites at regular intervals to monitor ourhigh standards for environmental protection,health and safety. We define specific measures inthe event that an audit reveals room for improve-ment (see page 42). We also want to check the

way in which we fulfill our social responsibility ina transparent manner. On behalf of the Sustain-ability Council a project team has now started todevelop a Group-wide monitoring system thatcovers the central social aspects of our Valuesand Principles.

In addition, we have a comprehensive riskmanagement system for general business risks. It consists of an internal monitoring system – arisk control system that observes developmentsin markets and regions and provides a summaryfor the Board of Executive Directors – as well asan early warning system. More information onour risk management system is provided onpages 70 to 74 of our Financial Report 2003. Youcan subscribe to our Sustainability Newsletter atwww.basf.de/newsletter_sustainability.

How do we Implement Sustainability inBASF’s Everyday Activities?Implementing the principles of sustainability in a company’s everyday activities is a particular challenge fora global company because economic, environmental and social conditions vary from country to country.The principles of sustainable development are firmly integrated in our Values and Principles, and we havecreated a management system to put them into practice throughout the BASF Group.

Sustainability Management Social Responsibility

56 | BASF 2003

Pudong Labor Union, Pudong New Area,China

Mayoralty of West Jakarta and People’sForum for Environmental Care, JakartaBarat, Indonesia

Responsible Care Committee of Indonesia(KN-RCI), Jakarta, Indonesia

Chilean Chemical Association (ASIQUIM), Santiago, Chile

Governor of Louisiana, United States

Foundation for Ecology and DemocracyRülzheim, Germany

Total E-Quality Association; (comprisingrepresentatives of the Confederation ofGerman Employers’ Associations and theGerman trade union federation; supportedby the European Commission and theGerman government)

Non-profit-making Hertie Foundation,Frankfurt, Germany

Workers Employers Bilateral Council ofPakistan (WEBCOP), Karachi, Pakistan;Alliance Against Sexual Harassment(AASHA), Pakistan

Outstanding achievements in the fields of health and safety as well as social insurance schemes for the employees ofBASF Colorants & Chemicals Co. Ltd.,Shanghai, China

Workplace cleanliness and safety at thesite in Cengkareng, Indonesia

Exemplary communications on environ-mental protection, health and safety inIndonesia

Compliance with all requirements of theResponsible Care code at the site inConcón, Chile

Recycling of a catalyst used to produceaniline at the site in Geismar, Louisiana

LUWOGE’s commitment to energy-effi-cient construction with the three-literhouse as an innovation in refurbishing and modernizing older buildings

Equal opportunities-driven personnelpolicy at BASF Aktiengesellschaft,Ludwigshafen, Germany

Family-friendly personnel policy atWintershall AG

Achievements of BASF Pakistan (Private)Ltd. in ensuring equal opportunities formen and women in the workplace

Selected sustainability prizes awarded to BASF in 2003

Award From For

“Most Welcome Enterprise to the Staff”Award

First Prize for Occupational Safety

Gold Award for Community Awareness

Responsible Care Award

Pollution Prevention Achievement Award

“Ökologia” Prize

Total E-Quality Award

Certificate for family-friendly personnel policy

Recognition Award for Gender SensitiveManagement

Social Responsibility Sustainability Management

BASF 2003 | 57

The value added statement therefore describes a key aspect of the relationships between impor-tant stakeholders such as employees, sharehold-ers and the state. It is derived from the data inthe consolidated financial statements.

In 2003, BASF’s value added amounted to€8,649 million and declined by 6.3 percent com-pared with 2002. This change resulted fromhigher cost of materials, which rose primarily dueto increased raw materials costs and to a greaterextent than the company’s performance. The

greatest share of value added (68.1 percent, 2002

64.8 percent) went to employees. The share forthe state increased to 16.4 percent and that forshareholders to 9.0 percent. The company’sshare declined considerably to 1.5 percent.

Our social responsibility is reflected in avariety of activities. For example, we promoteeducation, science and culture through dona-tions and our own projects. You can find moreinformation on page 62 ff.

Value Added The value added statement for the BASF Group shows the company’s business performance minus advancepayments such as material cost or depreciation. Unlike the statement of income, the value added statement isnot from the shareholder’s perspective, but explains BASF’s contribution to private and public income.

Creation of value added(Million €, previous year’sfigures in brackets)

Use of value added(Percent, previous year’sfigures in brackets)

= Value added 8,649 (9,230)

Company 1.5% (7.6%)Minority interests 0.8% (1.0%)

State 16.4% (13.8%)

Dividends to shareholders 9.0% (8.6%)

Creditors 4.2% (4.2%)

Employees 68.1% (64.8%)

Business performance34,056 (33,347)

– Cost of materials 19,018 (17,532)

– Depreciation and amortization 2,682 (2,495)

– Other expenses 3,707 (4,090)

25.4%

55.8%

7.9%

10.9%

Value Added Social Responsibility

58 | BASF 2003

People from all five continents work for BASF

in more than 170 countries. At the end of 2003,BASF had 87,159 employees and 2,983 traineesworldwide. In 2003, an average of approximately16,000 workers were additionally employed bycontract companies who provide services at oursites. Global measures to maintain and enhanceour competitiveness were the main reason forthe decline in the size of our workforce by 2,230

in 2003. In order to make the necessary structu-ral changes in a socially responsible mannerwhile giving young people a career perspectiveat BASF, we have deployed tools such as partialretirement and early retirement programs inGermany. Further tools include voluntary redun-dancy packages and part-time working arrange-ments. In 2003, Group-wide expenditure on sala-ries, wages, social security contributions andexpenses for pensions and assistance amountedto €5,891 million, or 1.4 percent less than in theprevious year.

Entrepreneurial success needs diversity A variety of attitudes, experience and inter-

cultural competence are essential if we want tobe able to offer intelligent solutions for the globalmarket. We want to foster a wide range of per-sonalities and thus enhance our competitiveness.

Today, BASF’s team of senior executivescomes from 31 different countries. In the future,we want this team to reflect even more stronglythe global nature of our business. Our goal is toincrease the proportion of non-German seniorexecutives from a current figure of 30 percent to35 percent by 2005. In addition, we aim to signif-icantly increase the number of female senior ex-ecutives from the current level of approximately5 percent. In each region, we have appointed a team to use specific measures to increase ourrange of competencies. Diversity begins at therecruitment stage: BASF’s management candi-dates worldwide come from around 40 countries.In addition, employees from more than 79 differ-ent countries work at our Ludwigshafen sitealone.

Relying on the Best Team In order to develop the best solutions for our company, we rely on the strengths of our employees: As adedicated and forward-looking team, it is they who create BASF’s success. This is why we want to recruit, train and retain the best talent from a variety of cultures and countries. To be an attractive employer, we offerour employees interesting prospects that include giving them room to act entrepreneurially and providingopportunities for personal development and professional qualification.

Europe

Thereof Germany

Thereof BASF Aktiengesellschaft

North America

South America

Asia, Pacific Area, Africa

62,103

50,320

38,361

13,331

5,097

8,858

89,389

69.5

56.3

42.9

14.9

5.7

9.9

100.0

69.5

56.2

42.5

14.3

5.7

10.5

100.0

60,541

48,997

37,054

12,494

4,976

9,148

87,159

% 2002 %2003

Employees by region

Percentage of BASF Group employees

Social Responsibility Employees

BASF 2003 | 59

Promoting equal opportunitiesEqual opportunity is something that affects

everyone: At BASF, it represents a special re-sponsibility in the globalized world of work. Thisis why – depending on the cultural specifics –company management, human resources depart-ments or employee representatives are respon-sible for equal opportunity issues at BASF Groupcompanies on top of the support provided by theleadership team. We have special equal opportu-nity officers in the United States, Australia, NewZealand and Pakistan. In addition, systematicevaluation of leadership behavior according tointellectual and social competencies makes itpossible to recognize and specifically developboth male and female employees as individuals,irrespective of their social and educational back-ground.

Special programs to specifically recruit women or actively develop women in managerialpositions exist at the four largest companies inthe BASF Group. Together, these companiesaccount for approximately 60 percent of BASF

Group employees. Internationalization is anotherfocus of personnel development. At many sites,we offer intercultural training to integrate em-ployees to prepare them for foreign assignments.Such programs are provided by more than 50

percent of BASF Group companies.

A family-friendly personnel policy is an impor-tant way of creating equal opportunities. VariousBASF initiatives have therefore aimed to make iteasier to combine family and career. We receivedexternal recognition for this commitment on several occasions last year. In Ludwigshafen, forexample, BASF was awarded “Total E-Quality”certification in May 2003 for its equal opportu-nities-driven human resources policy. This awardwas made by an independent jury with represen-tatives from employer bodies and German tradeunions that is supported by the European Com-mission and the German government. The non-profit-making Hertie Foundation commendedBASF’s subsidiary Wintershall for its flexibleworking-time models and its services to families,in particular its on-site children’s center that provides full-time qualified childcare for the children of employees. All in all, 19 percent ofGroup companies offer childcare facilities orcontributed to the cost of external facilities (2002:

18 percent). In 2003, more than 12,000 em-ployees were able to take advantage of these services.

Workforce profile 2003 (Previous year’s figures in brackets)

All employees

19.2% women(19.4%)

80.8% men(80.6%)

2

1

1

2

Management and professionals

17.9% women(17.1%)

82.1% men(82.9%)

2

1

1

2

5.2% women(3.6%)

94.8% men(96.4%)

1

2

2

1

Senior executives*

* Senior executives are defined as all managerial staff appointed by the Board of Executive Directors.

Employees Social Responsibility

60 | BASF 2003

Australia offers another prime example: Since1997, BASF has integrated into its human re-sources policy several equal opportunities proj-ects and programs that go beyond what is re-quired by law. Mentoring programs, training andflexible working time solutions are intended tomake it easier for women in particular to com-bine a career with family life.

Achieving a good work/life balance We want to continue to extend flexible

working time models and new forms of worksuch as part-time work, job sharing and processand team-oriented work. This benefits both em-ployees and the company. Working times that aremore flexible make it easier for employees tocombine the demands of family life and work.And the company benefits from more flexibleworking and plant operating times because em-ployees can increasingly be deployed accordingto our needs.

Around 50 percent of BASF Group compa-nies offer their employees the opportunity towork part time (2002: 55 percent). Worldwide,4.6 percent, or 3,780 employees, took advantageof this in 2003. Many employees also take up theoffer to work on a part-time basis during the per-iod of parental leave, which can last up to threeyears. At our Ludwigshafen site alone, for exam-ple, more than 20 percent of some 600 employ-ees on parental leave worked part time in 2003.

Rewarding performance Recognizing and rewarding performance

strengthens entrepreneurial thinking and acting.A number of programs at various Group compa-nies are based on this principle. A successfulmodel over many years has been compensationsystems related to individual and company per-formance. As a result, 75 percent of Group com-panies offer their employees voluntary annual

bonuses fixed by the Board of Executive Direc-tors of BASF Aktiengesellschaft or companymanagement at BASF Group companies. In 2003,more than 65,000 employees received a volun-tary bonus. At BASF Aktiengesellschaft, the vol-untary bonus is based on the BASF Group’s re-turn on assets. Fixing the bonus in such a trans-parent way – used for the first time in 2002 – motivates employees and fosters entrepreneur-ship.

Additional benefits for employees A variety of benefits makes a good job even

more interesting for talented job-seekers andcompany employees. Owning a stake in the com-pany is particularly important because it encour-ages responsibility. Employees who are alsoshareholders identify more closely with the com-pany and act accordingly. This is why 42 percentof Group companies offer almost 65,000 em-ployees share purchase programs.

Many Group companies additionally offersocial benefits above and beyond the minimumstatutory requirements. For example, more than71,000 employees receive company pensionplans. In addition, 48 percent of Group compa-nies offer their employees housing grants orcompany apartments in case of need. Rehabilita-tion programs for addiction or illness are avail-able at 40 percent of Group companies. Socialbenefits are geared to the specific needs of em-ployees in their cultural environment, such as the education of their children. In Indonesia, forexample, we pay tuition fees for the children of189 lower-wage employees. In Argentina, 44

gifted children receive a scholarship, and, in Pakistan, we pay college fees for technical or scientific studies for two children of any em-ployee who has worked at BASF for at least fiveyears.

Social Responsibility Employees

BASF 2003 | 61

Qualifications guarantee opportunities Flexibility is becoming increasingly impor-

tant at BASF and on the labor market. Virtuallynobody undergoing training today will be doingthe same job until retirement, which is why wesupport our employees through career develop-ment programs and through a number of spe-cially targeted qualification programs. In 2003,we invested €135.7 million worldwide in educa-tion and training (2002: €134 million). In Ger-many, we train more young people than we needfor our own requirements. Each employee re-ceived an average 3.4 days of training and morethan 70,000 took part in at least one trainingmeasure. We want to support independent and

practice-oriented learning even more intensivelyin the future by focusing on innovative trainingconcepts and modern technologies such as e-learning at work or especially in one’s free time.

As part of the career development of execu-tive candidates at BASF, we employ a systematicprogram known as “Performance Factory – Busi-ness Driven Action Learning.” In this program,we combine individual learning with adding val-ue for the company in wide-ranging, strategicallyimportant projects: By working together in inter-national teams for about four months, youngmanagers gather important practical experiencewhile strengthening their managerial skills.

Actively integrating employees

Employees are local specialists: Together, they

can identify possible improvements in their plants.

This is why employees at our isophytol plant in

Ludwigshafen have been working on modernizing

the plant and its processes in an employee and

organizational development project since 1999.

After four years, both employees and the company

have emerged as winners. Employees have bene-

fited because joint training and new work models

have further improved the working environment

and simultaneously contributed to their prospects

for the future. And the plant has benefited because

the improvements have helped reduce costs:

expenses for materials used were significantly

lower in 2003 compared with 1999. And because

more knowledge allows employees to take more

responsibility, the team in the isophytol plant now

independently makes many decisions that were

previously reached by the shift foreman.

Contributing ideas and taking responsibility: That’s also the goal of Tanja Pilz and Thomas Nick.

Further information and data atwww.basf.de/employeeswww.reports.basf.de/soc_resp2003

Employees Social Responsibility

62 | BASF 2003

The BASF Group spent a total of €13.1 million onthe specific sponsorship of humanitarian, cultu-ral and social issues in 2003 (2002: €15.7 mil-lion). Of this amount, 41 percent was in the formof donations, with the remainder going towardsponsorship activities and our own communityprojects. The projects BASF and its employeesare committed to are as diverse as the commu-nities in which our sites are located. Togetherwith local partners, those responsible at BASF’ssites draw up goals and projects for the com-munity or region in question. All of our projectshave one thing in common: They focus on localneeds.

Increasing educational opportunities,securing the future

Investing in education and science todaypays off in the long term in terms of competitive-ness and social prosperity. This is why BASF pro-motes activities all over the world that provideaccess to education or develop knowledge net-works. One of these networks – the Sino-GermanResearch and Development Fund – was estab-lished six years ago by BASF and has to datesupported more than 39 scientific projects andawarded 640 scholarships in China correspond-ing to a total of €1.2 million.

Promoting education also means improvingthe overall conditions under which education canoperate, in this way making equal opportunitiespossible. For this reason, BASF has, for example,supported a project in Karachi, Pakistan, for sev-eral years that provides additional schooling forabout 50 children aged between 5 and 14 years

with learning difficulties. In the community atour site in Cengkareng, Indonesia, we providescholarships to 125 local schoolchildren andfinancial support to 14 teachers. Two furtherexamples of how the overall situation of localschools can be improved come from the Philip-pines and Argentina. At its Canlubang site in thePhilippines, BASF not only donated schoolequipment in 2003, it also organized discussiongroups with parents on nutrition, safety and envi-ronmental protection. The Mi Escuela Crece (MySchool is Growing) project in Argentina is aimedat improving the basic equipment and infrastruc-ture at four schools with around 2,000 children in the vicinity of BASF’s sites in Argentina.

Fostering interest in scienceWe are committed to a policy of meeting

fundamental needs, but we also want to foster interest in the sciences and in this way showwhat prospects they offer. In Ludwigshafen, ourhands-on lab for schoolchildren has been suc-cessful for many years. In 2003, the lab traveledto Nanjing and Shanghai for the first time, where15,000 schoolchildren between the ages of 6 and12 were able to carry out basic chemistry experi-ments. Last year, the lab also visited our sites inYokkaichi, Japan, and Ulsan, Korea, in each casefor two days. BASF also sponsors talented youngscientists by supporting science competitions,such as Italy’s Giochi della Chimica (ChemistryGames) and Jugend forscht in Germany. Thefinals of the 2003 German competition for bud-ding scientists were hosted by BASF in Ludwigs-hafen.

Developing Together as Good NeighborsThe communities in which our sites are located play an important role in our success: We can only be successful ifwe enjoy the trust and support of our neighbors. This is why we work at all sites to be recognized as a dependablepartner and an attractive employer that takes its social responsibility seriously. In this way, we add to eachregion’s competitiveness as well as our own.

Social Responsibility Community

BASF 2003 | 63

Fostering voluntary activities by employees We offer our full support to employees who

wish to undertake voluntary work and this is whymany Group companies have programs that grantthese employees leave of absence. In 2003, morethan 500 employees at our Ludwigshafen sitewere engaged in voluntary activities, 250 of themin politics. For the first time, 60 Ludwigshafentrainees have also been given the opportunity toundertake voluntary work and in this way acquiresocial, as well as professional skills.

BASF’s Volunteer Program in Guara-tinguetá, Brazil, has encouraged voluntary workby its employees since 2000. The company setup a focus group – which reports to thecompany’s Steering Committee for Social Re-sponsibility – to establish and oversee contacts

between institutions and employees. In 2003,around 30 volunteers supported social projectspromoted by BASF and the community ofGuaratinguetá.

Protecting local environments and biodiversityWe support local environmental and nature

conservation projects in the vicinity of several ofour sites. In 2002, our Malaysian joint venture,BASF PETRONAS Chemicals, launched an an-nual initiative to clean up the Balok River in Ge-beng, which adjoins the site. Along with employ-ees, local residents and community representa-tives from Kuantan and Balok take part in theproject, which is aimed at increasing awarenessfor the environmental significance of mangroveswamps.

Committed to training

Well-trained employees contribute day by day to a

competitive society. Out of a sense of social respon-

sibility, BASF has for many years taken on a far higher

number of trainees than it actually needs. In spring

2003, BASF in Ludwigshafen underscored its commit-

ment by launching a training network to take account

of the persistently difficult situation in the training mar-

ket in the Rhine-Neckar region. The network wants to

tailor training more closely to the needs of future

employers, and BASF is already cooperating closely

with 100 companies in the region to achieve this.

BASF’s help extends to selecting trainees and provid-

ing facilities and the training expertise of its employ-

ees. Trainees work at partner companies during the

practical stage of their training. Apart from a contribu-

tion to wages, all costs are borne by BASF. The pro-

gram has a long-term advantage – it helps to secure

training places in the region and possibly even in-

creases their number.

Partners in the training net-work: Foreman Bernhard Esswein (left), KAMB Elektro-technik Ludwigshafen, withhis trainees.

Community Social Responsibility

64 | BASF 2003

In 2003, BASF cleaned up and redeveloped a dis-used part of its site in Wyandotte, Michigan, onthe Detroit River, transforming it into a park. Lo-cal residents can now take walks or play golfwhere chemical facilities once stood.

Biodiversity is also an important issue at theCramlington and Seal Sands sites in northeastEngland. Twenty employees are working with theIndustry Nature Conservation Association (INCA)

on how to foster biodiversity at the sites andcombine their efforts with the plans of the North-umberland and Tees Valley community councilfor the area. The idea is now to work more closely with local groups and associations.

Coping with crises togetherAt all of our production sites, we want to be

as well prepared as possible in the event of acci-dents and emergencies, and we are therefore ex-panding our Emergency Response ManagementSystem. It covers our subsidiaries and joint ven-tures around the world and also extends to sup-pliers, customers, neighboring companies aswell as the cities and towns in the communitiesin which we operate.

We have established Site Incident Manage-ment teams at all of BASF’s major productionsites worldwide. Further teams for crisis man-agement operate at the national level in countrieswith major production sites and at the regionallevel in Europe, North and South America and

Asia Pacific. In addition, global support for crisismanagement is also available from Ludwigsha-fen. Which of these management levels is acti-vated depends on the severity of the incident. We can count on support and flexibility: Those responsible at higher levels provide support tothe local teams. If required, teams of experts maybe formed at higher levels and dispatched to pro-vide local support in the form of Incident SupportTeams. In the event of a crisis, the proceduresdefined in BASF’s global guidelines for emer-gency response are activated.

In dialogue with our communitiesRegular and close dialogue is the aim of

our community advisory panels (CAPs). Theseconsist of company representatives and local citi-zens who discuss issues such as emissions, plantsafety or procedures in the event of a plant mal-function. In 2003, there were 57 CAPs at BASF

sites (2002: 57) and another 15 (2002: 14) arecurrently being planned. The CAP in Yeosu, Korea, established two years ago, even has itsown magazine to provide information about itsactivities. To distinguish CAPs from other formsof contact and interaction with our neighbors,BASF drew up standards for CAPs in 2002: Forexample, membership should reflect the diversityof the community’s interest groups and meetingsshould be regular.

BASF Group donations and sponsoring in 2003€13.1 million (2002: €15.7 million)

Million € Percent

Charities 1.6 12.4

Schools and training 2.9 22.0

Science 1.2 9.1

Employment promotion 2.0 14.9

Sports 0.5 3.7

Culture 3.0 23.1

Other 1.9 14.8

2

1

4

6

71

3

2

4

6

7

35

5

Social Responsibility Community

BASF 2003 | 65

Exactly what is required of BASF’s medical ser-vices for its employees is described in detail inour occupational medicine and health protectionprogram. Implementation of the program is en-sured by a worldwide network of specialists. We aim to apply the same prevention and healthpromotion standards worldwide. One example isour influenza inoculation program in Asia in 2003,in which around 3,200 employees took part. The standards we set ourselves are evaluated on a regular basis by occupational health audits(see page 42).

Advisory services for employees, the com-munity and customers

Our knowledge in occupational medicineand health protection is available to all employ-ees, residents and customers. The service in-cludes 15 competence centers spanning all areasof occupational medicine. They provide benefitssuch as a hotline staffed around the clock to pro-vide information on urgent BASF-related medicalissues. BASF provides extra support duringhealth crises like the recent epidemic of the lungdisease SARS. In addition to providing individualadvice, the unit also offers all employees with in-formation that is updated daily via the company’sintranet.

Promoting good healthProtecting and promoting health is an obli-

gation that doesn’t stop at the factory gate andthis is why we also work closely with external in-stitutions to improve prevention and screening

services in the communities in which our sitesare located. This also benefits us in the long term– a stable community that has good medicalknowledge and care strengthens our sites andfosters good relations with our neighbors.

For example, we have supported a munici-pal health care project for mothers and childrenin São Bernardo do Campo, Brazil, since 2002: amother-and-child passport. The passport is givento pregnant women from poor backgrounds andentitles them to medical support in 30 municipalinstitutions. Some 12,000 passports were distrib-uted in 2002.

Protecting and Promoting HealthOur goal is to promote and maintain the health, well-beingand performance of all our employees. We also want toensure that our products do not pose any risk to employ-ees, local residents, customers and consumers. To thisend, we focus on two key factors: uniform standardsworldwide in line with the principles of Responsible Care®

and a strong network of experts.

Healthcare professionals like Dr. Stefan Webendörfer offersadvice to promote good health.

Prevention as a contribution to society

Whether you have your eyes regularly examined or

do back exercises: Prevention is better than treat-

ment. And that’s not only true from the point of

view of those affected and the companies that

employ them but for welfare systems too. Many

BASF Group companies offer measures to promote

their employees’ health. The social value of such

activities can be summed up on the basis of a

Ludwigshafen campaign for the early detection of

bowel cancer, the results of which were published

in early 2003. Screening of 3,700 employees over

the age of 45 years detected a total of nine cases

of cancer of the intestine at an early stage as well

as 61 precancerous conditions. Early diagnosis

increases the chance of a cure and saves costs

for public health services, in this case around

€700,000. In addition, disability allowances for

employees were reduced by €1.1 million.

Further information atwww.basf.de/occupational_health

66 | BASF 2003

Tools for Sustainability Dialogue

Our business units consult our customers regu-larly to find out what they want and what they expect from us in the future. The results show us where we can further improve our services to positively differentiate ourselves from ourcompetitors. We also hold open dialogue withinthe company: Last year, we carried out employeesurveys on a variety of subjects at more thanone-third of our companies, and the results arebeing used to develop BASF further.

Constructive cooperation with employeerepresentatives

In 1995, BASF established a Europeanworks council – Euro Dialog – to further enhancecooperation with European employee representa-tives. The council meets on an annual basis; extraordinary meetings to discuss issues ofcross-border importance are a well-establishedpart of the council’s work. Two meetings tookplace in 2003, with discussions between EuroDialog and BASF’s management focusing on thefurther development of the European organiza-tion. Trade union-backed networks of BASF

employee representatives that are recognized bythe company management as dialogue partnersfor regional issues also exist in South Americaand Asia.

Actively addressing social issues Social and political conditions have a major

impact on our competitiveness. This is why weaddress these issues openly, talk to political deci-sion makers and work with them. We regard thisas a right as well as a duty – both social and cor-porate.

As the world’s leading chemical company and asa company that acts responsibly and contributesto sustainable development worldwide, we seeksolutions together with experts from all fields ofsociety. The safe handling of chemical productsand global climate protection are two globalgoals we publicly support and actively pursue. In complex areas such as these, we offer our ex-pertise and resources and act as a critical andconstructive partner.

From dialogue to partnership Along with existing projects within net-

works such as the Global Compact and the Initiative für Beschäftigung! (Initiative for Em-ployment), new projects established in 2003 atthe regional level include Zukunftspakt Chemie(Chemicals Pact for the Future). Together withthe German chemical industry union and chemi-cal industry associations we want to lobby for asustainable industrial policy, innovations and em-ployment. In Asia, we are also establishing a newnetwork to promote sustainability. We foundedthe China Business Council for Sustainable De-velopment (CBCSD) in Beijing in January 2004

together with 11 other companies. In addition,we recently hosted an international conferenceon foreign direct investment in Berlin. The goalwas to contribute to the debate on globalizationand sustainability and offer our experience as aninternational company.

Mutual Success through Open Dialogue We exchange views within the company, with neighbors, business partners and opinion formers because we want to strengthen the basis of mutual trust and foster an atmosphere in which we can develop together.For us, dialogue is both a pre-condition and a means for building and cultivating partnerships.

GLOBAL COMPACT � Shared values and activities for the global marketplace are the core idea behind

the UN’s Global Compact initiative, of which BASF is a founding member. As a member of the Global

Compact, we report regularly on how we implement the nine principles. Our latest progress report can

be found at www.basf.de/global_compact_e.

BASF 2003 | 67

Introduction We have performed an assurance engagement on environmental and social aspects of the BASF CorporateReport 2003 and respective information on the website www.reports.basf.de (as a whole hereafter referred to as the ‘Report’), and of the underlying systems, structures and processes. These subject matters are the responsibility of the BASF Group Management, with whom the objective and terms of the engagement were agreed. We are responsible forexpressing our conclusions based on the engagement.

We have based our approach on emerging best practice for independent assurance on sustainability reporting, on the International Framework for Assurance Engagements and on ISAE 3000, issued in January 2004 by the InternationalAuditing and Assurance Standards Board. Subject matter The effectiveness of the systems, structures and processes established at BASF Group level for managingsustainability, including BASF Values and Principles, Compliance Program, Organization of Sustainability Management andstructures for managing environment, safety, health, as described in the Report on pages 14 to 15, 41 and 55, and the im-plementation of these at the Group companies BASF Schwarzheide GmbH, BASF Canada in Toronto, and BASF Colorantsand Chemicals in Shanghai.

The procedures and practice for the collection, compilation and validation of 2003 data from Group companies andproduction sites on environmental protection and safety and on social responsibility as described in ‘About the Report’; andwhether data collected in this way are appropriately reflected in the Report.

The methodology and process that BASF at Group level has put in place for the preparation of the Report, as describedin ‘About the Report’; and whether the information presented in the Report meets its objectives to provide an appropriateand balanced picture of the BASF Group’s material sustainability aspects. Procedures Our objective was to achieve limited assurance. On a test basis we have gathered and evaluated evidencesupporting the conformity with criteria for the subject matters described. This work included analytical procedures andinterviews with management representatives and employees at BASF Group headquarters in Ludwigshafen and at the threeGroup companies mentioned, as we deemed necessary in the circumstance, but no substantial testing. Therefore, the assu-rance that we obtained from our evidence gathering procedures is limited. We believe that our work provides an appro-priate basis for our conclusion. Results In conclusion, nothing has come to our attention that causes us not to believe that:

BASF Management has designed and applied appropriate systems, structures and processes to manage material sus-tainability aspects, affecting BASF at Group level. The three Group companies visited have implemented the Group require-ments to appropriately manage their material sustainability aspects at local level.

BASF at Group level has applied detailed and systematic procedures for the purpose of collecting, compiling and validating 2003 data on environmental protection and safety and on social responsibility from Group companies and manu-facturing sites, as specified in the Report, for inclusion and appropriate reflection in the Report.

BASF at Group level has used detailed and systematic methodology and process for the preparation of the Report inorder to achieve its reporting objective. The information presented in the Report provides an appropriate and reasonablybalanced picture of the BASF Group’s material sustainability aspects.

Ludwigshafen, March 3, 2004

DELOITTE Global Environment & Sustainability Services

Preben J. SørensenState Authorized Public Accountant (Denmark)

VerificationIndependent Statement to BASF Group Management

Verification

68 | BASF 2003

Glossary Index

CO2 equivalentA parameter to describe the ef-fect of greenhouse gas emissions.Each of the various gases has adifferent impact. A factor knownas the global warming potential(GWP) provides information onthe effect of the individual gasescompared with CO2 (= referencevalue).

corporate governance Corporate governance refers tothe entire system of managingand overseeing a company. Thisincludes the organization of acompany, its principles andguidelines as well as all internaland external regulatory andmonitoring mechanisms.

EBITEarnings before interest andtaxes.

EBITDAEarnings before interest, taxes,depreciation and amortization.

eco-efficiency analysisThis analysis allows both econo-mic and environmental aspects tobe considered when developingand optimizing products and pro-cesses. The aim is to offer thebest possible cost-effective prod-ucts with good environmentalperformance.

energy managementIn this area, BASF Future Busi-ness GmbH is focusing on newmaterials and technologies toconvert and store energy, e.g.,functional elements of fuel cells,new materials that employ thethermoelectric effect or super-capacitors.

greenhouse gasesA number of gases in the earth’satmosphere that are responsiblefor the greenhouse effect.The greenhouse gases are: carbon dioxide (CO2), methane(CH4), nitrous oxide (N2O), chlorofluorocarbons (HFC, PFC),sulfur hexafluoride (SF6) and ozone (O3).

heavy metalsBASF reports on emissions ofheavy metals to air and water inaccordance with the recommen-dations of the European ChemicalIndustry Council (CEFIC). Report-ing covers the following heavymetals:For air: arsenic, cadmium, cobalt,chromium, mercury, nickel, lead,zinc.For water: arsenic, cadmium,chromium, copper, lead, mercury,nickel, zinc.

joint ventureTwo or more businesses joiningtogether under a contractualagreement to conduct a specificbusiness enterprise in which allpartners share profits and losses.

Kyoto ProtocolThe Kyoto Protocol was adoptedin 1997 at the 3rd Conference ofParties to the United NationsFramework Convention on Cli-mate Change. Under the terms of the Protocol, industrializednations agreed to cut their jointemissions of the most importantgreenhouse gases to at least 5percent below 1990 levels in theperiod 2008 to 2012.

Montreal ProtocolThe Montreal Protocol signed in1987 governs the production anduse of chlorofluorocarbons(CFCs). All CFC emissions de-plete the ozone layer. In an inter-im period, production of CFCs isonly permitted for use in medicalaerosols. CFCs are expected to be banned completely from 2005onward.

oil equivalentInternational standard for com-paring the thermal energy of different fuels.

portfolio managementIncludes all measures to furtherdevelop BASF’s business areas,for example: organic growth,acquisitions, divestitures andstrategic alliances.

product portfolioThe range of products offered bya company.

Responsible Care®

A worldwide initiative by thechemical industry to continuouslyimprove its performance in thefields of environmental protec-tion, health and safety. BASFcommitted itself to the concept of “responsible action” as earlyas 1992.

special itemsOne-time costs or one-time pay-ments that significantly affect the earnings of a segment or theBASF Group. Special items in-clude costs for restructuringmeasures and severance pay-ments to employees who leavethe company.

steam crackerA large plant in which steam isused to “crack” naphtha (petrol-eum). The resulting petrochemi-cals – above all, ethylene andpropylene – are the starting mat-erials used to manufacture mostof BASF’s products.

sustainable developmentThe objective of sustainable de-velopment is to meet the econo-mic, environmental and socialneeds of society without harmingthe development opportunities offuture generations. BASF is com-mitted to this principle.

value addedThe increase in value of thegoods used in the productionprocess. At BASF, value-added is derived from the statement ofincome as the difference betweenbusiness performance and ad-vance payments (in particularpayments to suppliers).

value-adding chainSuccessive steps in a productionprocess, from the raw materialsthrough various intermediatesteps to the finished product.

VerbundThe Verbund is one of BASF’sgreatest strengths: At our majorsites, we link our productionplants in a sophisticated systemalong our value-adding chains:We thus save energy and rawmaterials, reduce logistics costsand use infrastructure facilitiesjointly.

world-scale plantsLarge production plants in whichproducts can be manufactured ona world scale. The more a plantproduces, the lower the fixedcosts per metric ton of product(economies of scale).

Acquisitions . . .3, 5, 21, 23, 24Asia . . . . . . . . . . . . . . . . . . . . . . . 3, 22-23, 24, 27, 28, 43, 62, 66

Balance sheet . . . . . . . . . . . .21Biotechnology . . . . .5, 9, 29, 32Board of Executive Directors . . . . . . . . . . . . . . . . . . . . 6-7, 12-13

Chemicals policy . . . . . . . . .41Coatings . . . . . . .26, 27, 37, 42Code of Conduct . . . . . . .14-15Compliance Program . . . .14-15Corporate governance . . .12-13Customers . . . . .5, 9, 34-37, 49

Dow Jones Sustainability World Index . . . . . . . . . . . . .18

Eco-efficiency analysis . . . . . . . . . . . . . . . . . . . .5, 10, 35, 38-39Employee representatives . . .66Employees . . . . . . .5, 10, 58-61Environmental protection . . . . . . . . . . . . . . . . . . . . . . .11, 41-48Europe . . . .3, 24, 30, 31, 51, 64

Finance . . . . . . . . . . . . . .20-21Fine Chemicals . . . . . . . . . . .28Functional Polymers .26, 27, 49

Global Compact . . . . . . . . . .66

Inorganics . . . . . . .3, 22-23, 46Intermediates . . . . . . . . .22, 23Investments . . . . . . . . . . . . . .21Investor Relations . . . . . . . . .19

Markets . . . . . . . . . .8, 9, 32-33

North America (NAFTA) . . . . . . . . . . . . . . . . 3, 15, 21, 51, 42, 64

Pensions . . . . . . . . . . . . . . . .60Performance Chemicals . . . . . . . . . . . . . . . . . 26, 27, 36. 42, 43Performance Polymers . . . . . . . . . . . . . . . . . . . . . . 25, 35, 36-37Petrochemicals . . . . . . . .22, 43Polyurethanes . . .24, 25, 32, 35Portfolio management . . .4-5, 8Product portfolio . . . . . .1, 8, 22

Research and development . . . . . . . . . . . . . . . . . . . . . . . .32-33Responsible Care . . .41, 52, 55

Safety . . . .11, 49, 50, 51, 52-53Shares . . . . . . .4, 13, 18-19, 20South America . . . . . .63, 65, 66Strategy . . . . . . . . . . . . . . .8-10Styrenics . . . . . . . . . .24, 25, 37Supervisory Board . . . .3, 12-12Suppliers . . . . . . . . . . . . .52-53Sustainability . . . . . .1, 5, 10, 55Sustainable development . . . . . . . . . . . . . . . . . . . . . 1, 5, 10, 55

Training . . . . . . . . . . .61, 62, 63

Values and Principles . . . . . .14Verbund . . . . . . . . . . . .4, 22, 44Voluntary agreements . . . . . . . . . . . . . . . . . . . . . . 11, 41, 48, 49

Wintershall . . . . . . . . . . . .30-31

GRI IndexThis index shows you where you can find information on the core elements and indicators of the Global Reporting Initiative (GRI) inthis report and in our Financial Report (FR). Our online reporting provides additional information on some indicators atwww.reports.basf.de. You can find the complete version of the GRI index with all cross-references at www.reports.basf.de/gri-index.Further information on GRI is available at www.globalreporting.org.

GRI Index

GRI Reference Indicator Page

1.1

1.2

2.1, 2.2–2.8, 2.9

2.14

2.20, 2.21

3.1, 3.2–3.5, 3.6–3.7, 3.8

3.10–3.12

3.14–3.16, 3.19, 3.20

EC1, EC2

EC5

EC6–EC7

EC8, EC10

EN3

EN5

EN6–EN7

EN8–EN10

EN11

EN12

EN13

EN14

EN16

LA1, LA12

LA3, LA4, LA13

LA5–LA6, LA7

LA9, LA16

LA10–LA11

HR4

HR6, HR7

SO1, SO4

SO2

SO3

SO6, SO7

PR1, PR6

PR2, PR8

3, 8-10, 55

4-5, 11

Cover flap, 1, 3, 5, 9, 18-19,

20-21, 57-58, 66; Cover, FR: 14,

20-23, 35-50, 53-55, 78-126

21; FR: 60-69, 134

48, 67; FR: 70, 77

3, 12-13, 14-15, 18-19, 55;

FR: 63-65, 68, 70-74

Cover flap, 38-39, 64, 66

11, 12-15, 38-39, 41-42, 45, 49,

50, 51, 52-53, 65, 66; Cover;

FR: 60

Cover flap, 20-21; FR: 21, 49-50,

56-57

58; FR: 58-59

3, 18-19; FR: 78-81

20, 57, 62-64; FR: 24

44

48

63-64

45-47

48

47-48

51

38-39, 49

14-15

Cover flap, 58-61

14-15, 66

50, 65

61

59, 60

22, 59

53

56, 62-64, 66

15

41

14; FR: 127-128

38, 49

49, 66

General

Vision and strategy

Sustainable development vision and strategy

Chief executive statement

Profile

Organizational profile

Report scope

Report profile

Governance structure and management systems

Structure and governance

Stakeholder engagement

Policies and management systems

Economic performance indicators

Customers

Employees

Providers of capital

Public sector

Environmental performance indicators

Energy

Water

Biodiversity

Emissions, effluents and waste

Greenhouse gases, ozone-depleting substances, air

Total amount of waste

Water

Significant spills

Products and services

Products and services

Compliance

Social performance indicators

Labor practices and decent work

Employment

Labor/management relations

Health and safety

Training and education

Diversity and opportunity

Human rights

Nondiscrimination

Child labor, forced and compulsory labor

Society

Community

Bribery and corruption

Political contributions

Competition and pricing

Product responsibility

Customer health and safety

Products and services

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Key data BASF Group 2003

Sales (million €)BASF Group sales 33,361Sales by segment

Chemicals 5,752Plastics 8,787Performance Products 7,633Agricultural Products & Nutrition 5,021Oil & Gas 4,791Other 1,377

Sales by region (location of customer)Europe 19,120

Thereof Germany 7,073North America (NAFTA) 7,163South America 1,765Asia, Pacific Area, Africa 5,313

Income (million €)Income from operations (EBIT) 2,658Income before taxes and minority interests 2,168Net income 910Net income in accordance with U.S. GAAP 1,338

Other key dataEquity ratio (%) 47Return on assets (%) 7.4Research and development expenses (million €) 1,105Additions to fixed assets (million €) 3,541Number of employees (Dec. 31, 2003) 87,159

Key BASF share data (€)Year-end share price 44.58High 44.58Low 28.41Per share information:Dividend 1.40Earnings per share 1.62

Corporate Media Relations:

Michael Grabicki

Phone: +49 621 60-99938

Fax: +49 621 60-20129

Investor Relations:

Magdalena Moll

Phone: +49 621 60-48230

Fax: +49 621 60-22500

BASF Aktiengesellschaft67056 LudwigshafenGermanywww.basf.com

Registered trademarks/ownersCeoDS is a registered trademark of Elastogran GmbH

ChiPros is a registered trademark of BASF Aktiengesellschaft

Colorflex is a registered trademark of BASF Aktiengesellschaft

Comet is a registered trademark of BASF Agrochemical Products B.V.

Eusapon is a registered trademark of BASF Aktiengesellschaft

F 500 is a registered trademark of BASF Aktiengesellschaft

Keropur is a registered trademark of BASF Aktiengesellschaft

Luviset is a registered trademark of BASF Aktiengesellschaft

mincor is a trademark of BASF Future Business GmbH

Opera is a registered trademark of BASF Aktiengesellschaft

PFM-System is a registered trademark of BASF Aktiengesellschaft

PolyTHF is a registered trademark of BASF Aktiengesellschaft

Responsible Care is a service mark of the American Chemistry Council

Sandwich Plate System is a trademark of Intelligent Engineering Holding

Styrolux is a registered trademark of BASF Aktiengesellschaft

Ultramid is a registered trademark of BASF Aktiengesellschaft

Ultratect is a registered trademark of BASF Aktiengesellschaft

Uvinul is a registered trademark of BASF Aktiengesellschaft

BASF on the Web

The CompanyCorporate www.basf.de/governance_eGovernance www.basf.de/governance_e/reports

Principles for our Activities www.basf.de/values

Economic Results and PerspectivesBASF Shares www.basf.de/share

Chemicals www.reports.basf.de/chemicals

Plastics www.reports.basf.de/plastics

Performance Products www.reports.basf.de/performance_products

Agricultural Products www.reports.basf.de/agro

Nutrition www.reports.basf.de/nutrition

Oil & Gas www.reports.basf.de/oil+gas

Eco-efficiency Analysis www.basf.de/eco-efficiency

Environmental Protection and SafetyResponsible Care® www.basf.de/competence-center-rc

www.reports.basf.de/audits_ewww.reports.basf.de/certified

Environmental Protection www.reports.basf.de/environment2003

www.reports.basf.de/emissions_listswww.basf.de/emissions_trading

Product Stewardship www.basf.de/chemicals_policy

Social ResponsibilitySustainabilityManagement www.basf.de/sd-management_e

Employees www.basf.de/employees

Community www.basf.de/community

Health Protection www.basf.de/occupational_health

Dialogue www.basf.de/dialogue

GRI Index www.reports.basf.de/gri-index

ZOAC 0410E

Forward-looking statements

This report contains forward-looking statementsunder the U.S. Private Securities Litigation ReformAct of 1995. These statements are based on cur-rent expectations, estimates and projections ofBASF management and currently available informa-tion. They are not guarantees of future perfor-mance, involve certain risks and uncertainties thatare difficult to predict and are based upon assump-tions as to future events that may not prove to beaccurate. Many factors could cause the actualresults, performance or achievements of BASF tobe materially different from those that may be ex-pressed or implied by such statements. Such fac-tors include those discussed in BASF’s Form 20-Ffiled with the Securities and Exchange Commis-sion. We do not assume any obligation to updatethe forward-looking statements contained in thisreport.

Yes,please send me further information!

This report went to press on March 4, 2004 and was published on March 17, 2004.

Key dataBASF Group 2003

BASF is a member of theWorld Business Council forSustainable Development.

BASF shares were included forthe third year in succession inthe Dow Jones SustainabilityIndex World.

Publisher:BASF AktiengesellschaftCorporate Department Communications67056 LudwigshafenGermany

You can find HTML versions of this and other publications from BASF on our homepage at www.basf.com

You can also order the reports• by telephone: +49 621 60-91827• by telefax: +49 621 60-20162• by e-mail: medien-service@basf-ag.de• on the Internet: www.basf.de/mediaorders• or using the postcard at the end of this report.

Contacts

Corporate Media Relations:Michael GrabickiPhone: +49 621 60-99938Fax: +49 621 60-20129

Corporate Publications:Jörg KordesPhone: +49 621 60-41706Fax: +49 621 60-20384

Sustainability Center:Dr. Lothar MeinzerPhone: +49 621 60-41976Fax: +49 621 60-95873

Investor Relations:Magdalena MollPhone: +49 621 60-48230Fax: +49 621 60-22500

General inquiries:Phone: +49 621 60-0Fax: +49 621 60-42525

Internet:www.basf.de/corporate-report

BASF Aktiengesellschaft67056 LudwigshafenGermany

Important dates

� March 17, 2004Financial Results 2003

� April 29, 2004Annual Meeting, MannheimInterim Report First Quarter 2004

� August 4, 2004Interim Report Second Quarter 2004

� November 11, 2004Interim Report Third Quarter 2004

� March 9, 2005 Financial Results 2004

� April 28, 2005Annual Meeting, MannheimInterim Report First Quarter 2005

Design:Bert Klemp Corporate Design, Frankfurt

Photos: Andreas Pohlmann, MunichD. W. Schmalow, MannheimHartmut Nägele, Düsseldorf

This report was printed with K+E printing inks on paper produced using BASF paper-finishing products.

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