Letter from the Chairman of the Board of Executive Directors

2008 was a year that brought dramatic change to the world economy and to BASF: a global financial crisis, massive downturns in economies around the world and enormous fluctuations in raw material prices. In the current year, the global recession and shrinking world chemical market will confront us with unprecedented challenges. All forecasts are subject to great uncertainty.

After a very good start to 2008, customer demand declined drastically, particularly in the fourth quarter. Overall, sales increased compared with 2007, while income from operations was below the previous year’s very good level. BASF shares were also caught up in the worldwide decline on the stock markets – we are not satisfied with our stock performance. But even in difficult times, we stand by our ambitious dividend policy. We propose to pay a dividend of €1.95 per share.

We responded quickly to the tremendous downturn: Worldwide, we have reduced capacity or temporarily closed production facilities, and adjusted working hours to the new situation. I am impressed with the flexibility and commitment shown by the BASF team in these circumstances and would like to sincerely thank all of our employees. This year, more than ever before, it will be essential to work together to build trusting relationships both internally as well as with our customers, suppliers and other business partners. I am convinced that in tough times like these, the BASF team will show what it is capable of.

Our goal remains to increase value

Despite the immense challenges, the economic environment in the current year also presents new opportunities for our business. We will actively pursue them to assert our position as the world’s leading chemical company. We are well equipped to do so thanks to our long-term strategy for sustained growth, our solid financing, and a portfolio that we have developed in the past years to be more robust and competitive.

We are working continually to improve BASF’s position, for example with the acquisitions of the Swiss chemical company Ciba and the Norwegian oil and gas company Revus Energy. We completed the acquisition of Revus at the end of 2008. We aim to close the Ciba acquisition in the first quarter of 2009 so that we can start quickly with the integration and restructuring.

Just as high on our agenda is to be quicker, more flexible and more decisive in the face of fierce global competition. We are therefore accelerating the rigorous implementation of our restructuring and efficiency programs. From 2012 onward, we expect a positive earnings contribution of more than €1 billion annually through NEXT – our new global program to improve operational excellence and efficiency in all areas of daily business. A large portion of this amount will be achieved in 2009 and 2010.

Chemistry remains a strong motor for innovation

Despite the strong economic headwind, I firmly believe that chemistry is the motor for innovation when it comes to finding solutions for global challenges like climate protection, nutrition, water, energy, mobility, and an overall better quality of life for the growing world population. In short: BASF wants to shape the future with chemistry, especially in difficult times like the present. And to do so, we need outstanding innovations above all.

For example in new and innovative technologies, like plant biotechnology or nanotechnology, we want to open up new applications. Despite the difficult economic environment, we are therefore maintaining a high level of spending on research and development in 2009.

But outstanding innovations require more than that: They need a corporate culture that encourages unusual perspectives and creativity. Employees who approach topics from different angles advance our company and reflect the diversity of our customers and markets. In my view, it is therefore especially important that we continue to measurably increase the diversity and internationalism of BASF employees. To achieve this, we started the global project “Diversity + Inclusion” in 2008, and the first pilot projects are now being implemented.

Sustainable development

Difficult times especially show that companies which conduct their business sustainably and responsibly are more successful in the long-term. That is why sustainability is a firm part of BASF’s strategy: Long-term success is not possible unless the environment and society are treated carefully. We are therefore committed to implementing the principles of the U.N. Global Compact.

BASF received a number of awards for its sustainability management in 2008: For example, we lead the Dow Jones Sustainability Index as the best chemical company. Success like this spurs us on: We have set ourselves ambitious goals for the future that you can read more about in this report.

For my fellow Board members and me as well as for the entire BASF team, one thing is certain: Shaping the future requires determination, especially in difficult times like the present. Our highest priorities are to be a reliable partner for our customers, maintain our strong cash flow, reduce costs and continue our restructuring efforts. What is clear is that there are enormous challenges ahead of us. We are ready to face them with our full strength and with trust in your support.

Sincerely yours,

Dr. Jürgen Hambrecht
Chairman of the Board of Executive Directors of BASF SE