Income from operations

Income from operations (million €)

We increased income from operations by €566 million to a new record high of €7,316 million. At €2,895 million, we again earned a significantly higher premium on our cost of capital (2006: €2,126 million).

We were able to largely offset significantly higher raw material prices by increasing sales prices. The increase in earnings was due to our ongoing programs to optimize and increase efficiency and, in particular, to the businesses acquired in 2006. In 2007, income from operations was negatively impacted by higher research and development expenditures, plant turnarounds and higher costs for the BASF Option Program.

Earnings increased in the Chemicals segment. This was due in particular to restructuring measures introduced in recent years in the Intermediates division and to improved earnings in the Petrochemicals division.

In the Plastics segment, income from operations increased further in the Polyurethanes and Styrenics divisions.

In the Performance Products segment, the increase in earnings in the Construction Chemicals and Performance Chemicals divisions more than offset the decline in earnings in the Coatings and Functional Polymers divisions.

In the Agricultural Products division, income from operations improved significantly due to higher sales volumes and prices. Higher earnings in the Fine Chemicals division were due in particular to the restructuring measures introduced in recent years.

Income from operations in the Oil & Gas segment was below the previous year’s record level despite the higher oil price. In the exploration and production business sector, earnings declined due in particular to the general cost trend in the industry. In the natural gas trading business sector, earnings also declined. Margins were negatively impacted by the steady increase in oil prices throughout the year. The purchase price of natural gas responds to this trend faster than sales prices which contractually can only be adjusted with a lag of several months.

Special items

Income from operations in 2007 contained special charges of €298 million compared with €507 million in the previous year.

Structural measures were responsible for €185 million. These measures related to European sites and the Coatings division in North America.

The integration of the businesses acquired in 2006 resulted in special charges of €63 million in 2007.

In 2007, special income resulted from divestitures associated with portfolio optimization in the Fine Chemicals division and from the sale of our approximately 42% stake in an ethane cracker in the United States.

Income before taxes and minority interests

Compared with 2006, income before taxes and minority interests increased by €408 million to €6,935 million.

The financial result declined by €158 million to €(381) million. Interest expenses increased because of the financing costs for the acquisitions made in mid-2006. In addition, the financial result in 2006 contained a tax-free gain from the sale of securities.

The return on assets was 16.4% compared with 17.5% in 2006.