14 – Intangible assets

The goodwill of BASF is allocated to 27 cash-generating units (2012: 31) which are defined either on the basis of business units or on a higher level.

The annual impairment testing took place in the fourth quarter of the year on the basis of the cash-generating units. The recoverable amount was determined using the value in use; this was done using five-year plans and their respective cash flows which had been approved by company management. For the time period after the fifth year, a terminal value is calculated using a forward projection from the last detailed planning year as a perpetual annuity. In accordance with IAS 36, the applied growth rates do not factor in capacity-increasing investments for which no cash outflows have taken place. The planning is based on experience, current performance and management’s best possible estimates on the future development of individual parameters, such as raw material prices and profit margins. Market assumptions regarding, for example, economic development and market growth are included based on external macroeconomic sources as well as sources specific to the industry.

The weighted average cost of capital rate after tax required for the impairment tests is determined using the Capital Asset Pricing Model. It comprises a risk-free rate, the market risk premium and the spread for the credit risk. The calculation also takes into account BASF’s capital structure and the volatility of the BASF share in comparison with the capital market (beta) as well as the average tax rate of each cash-generating unit. The impairment tests were conducted assuming a weighted average cost of capital rate between 7.47% and 7.57% (2012: 6.82% to 7.01%). For the cash-generating unit Exploration & Production in the Oil & Gas segment, a cost of capital rate of 8.83% was applied (2012: 8.39%), which takes country-specific risks into account.

In determining the value in use for the majority of cash-generating units, BASF generally anticipates that a reasonably possible deviation from the key assumptions will not lead to the carrying amount of the units exceeding their respective recoverable amounts. The goodwill of the Constuction Chemicals division and the cash-generating unit Pigments in the Dispersions & Pigments division are exceptions. The goodwill of the Construction Chemicals division arose in connection with the acquisition of Degussa Bauchemie in the 2006 financial year and the goodwill of the cash-generating unit Pigments arose in connection with the acquisition of Engelhard and CIBA in the 2006 and 2009 financial years, respectively. In the 2013 financial year, the value in use of Construction Chemicals exceeded the carrying amount by around €225 million and the value in use of Pigments exceeded the carrying amount by approximately €241 million. The weighted average cost of capital rate used for the impairment testing of Construction Chemicals and of Pigments was 7.52% (2012: 6.91%) and 7.50% (2012: 6.89%), respectively. The recoverable amounts would equal the carrying amounts if the weighted average cost of capital rate increased by 0.52% for Construction Chemicals and by 1.05% for Pigments.

Earnings in the Construction Chemicals division were influenced by the growth of the construction industry. Earnings in the cash-generating unit Pigments were influenced by the growth in the application areas organic and inorganic pigments as well as effect pigments and pigment preparations. The focus on attractive market segments and the measures introduced to increase efficiency also influenced earnings. The carrying amounts of the Construction Chemicals and the Pigments units would equal the value in use if income from operations of the last detailed planning year, as the basis for the terminal value, were lower by 9.75% or 18.02%, respectively.

The impairment tests resulted in no impairment losses on goodwill in 2013, as in the previous year.

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Goodwill of cash-generating units (million €)

 

2013

 

2012

Cash-generating unit

Goodwill

Growth rates1

 

Goodwill

Growth rates1

1

Growth rates of impairment tests to determine terminal values in accordance with IAS 36

Crop Protection division

1,796

2.0%

 

1,870

2.0%

Catalysts division (excluding battery materials)

1,223

2.0%

 

1,365

2.0%

Exploration & Production in the Oil & Gas segment

959

(2.0%)

 

325

0.0%

Construction Chemicals division

642

1.5%

 

691

1.5%

Personal Care Ingredients in the Care Chemicals division

473

2.0%

 

440

2.0%

Pigments in the Dispersions & Pigments division

352

2.0%

 

368

2.0%

Other cash-generating units

1,427

0.0–2.0%

 

1,325

0.0–2.0%

Goodwill as of December 31

6,872

 

 

6,384

 

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Development of intangible assets 2013 (million €)

 

Distri­bution,
supply and
similar rights

Product rights, licenses and trade­marks

Know-how, patents and pro­duction tech­nologies

Internally generated intangible assets

Other rights and values2

Goodwill

Total

2

Including licenses to such rights and values

Cost

 

 

 

 

 

 

 

Balance as of January 1, 2013

4,397

1,414

1,892

92

697

6,384

14,876

Changes in scope of consolidation

1

3

1

3

8

Additions

5

18

14

98

135

Additions from acquisitions

33

52

198

88

787

1,158

Disposals

(35)

(104)

(71)

(31)

(48)

(18)

(307)

Transfers

(2)

3

11

3

15

Exchange differences

(225)

(6)

(51)

(1)

(29)

(287)

(599)

Balance as of December 31, 2013

4,171

1,364

1,984

77

818

6,872

15,286

Accumulated valuation allowances

 

 

 

 

 

 

 

Balance as of January 1, 2013

1,389

399

614

55

226

2,683

Changes in scope of consolidation

1

1

1

3

Additions

305

67

166

19

78

635

Disposals

(30)

(38)

(71)

(31)

(45)

(215)

Transfers

(4)

(4)

Exchange differences

(28)

(14)

(9)

(51)

Balance as of December 31, 2013

1,637

429

695

43

247

3,051

Net carrying amount as of December 31, 2013

2,534

935

1,289

34

571

6,872

12,235

There were additions of €412 million to intangible assets in 2013 in connection with the acquisition of Pronova BioPharma ASA. Of this amount, €164 million pertained mainly to technologies, €141 million to goodwill and €83 million to other rights and values.

The transaction with Statoil ASA resulted in additions of €675 million to intangible assets, €643 million of which to goodwill and the remaining amount to other rights and values. The disposal of a 15-percent share of the Edvard Grieg development field reduced intangible assets by €70 million, of which €8 million represented a pro-rata share of goodwill.

In connection with the acquisition of Verenium, there were additions of €20 million to intangible assets in 2013, of which €4 million were to goodwill.

Concessions for oil and gas production under the category product rights, licenses and trademarks with a net carrying amount of €455 million in 2013 (2012: €497 million) authorize the exploration and production of oil and gas in certain areas. Some of these rights entail obligations to deliver a portion of the production output to local companies. At the end of the term of a concession, the rights are returned.

In other rights and values, the line item transfers includes additions the market value adjustments of emission rights recognized directly in equity as of the balance sheet date.

Disposals were primarily caused by the derecognition of fully amortized intangible assets.

Impairments of €25 million were recognized in 2013, primarily related to licenses in the Oil & Gas segment and customer relations in the Performance Products segment. The recoverable amount was determined using the value in use. Impairments are reported under other operating expenses. There were no material reversals of impairments in 2013.

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Development of intangible assets 2012 (million €)

 

Distri­bution,
supply and
similar rights

Product rights, licenses and trade­marks

Know-how, patents and pro­duction tech­nologies

Internally generated intangible assets

Other rights and values1

Goodwill

Total

1

Including licenses to such rights and values

Cost

 

 

 

 

 

 

 

Balance as of January 1, 2012

4,768

1,626

1,950

81

602

5,961

14,988

Changes in scope of consolidation

7

2

8

3

1

14

35

Additions

5

19

20

20

42

106

Additions from acquisitions

45

37

176

229

586

1,073

Disposals

(382)

(272)

(261)

(12)

(149)

(6)

(1,082)

Transfers

(44)

5

12

(18)

(64)

(109)

Exchange differences

(2)

(3)

(13)

(10)

(107)

(135)

Balance as of December 31, 2012

4,397

1,414

1,892

92

697

6,384

14,876

Accumulated valuation allowances

 

 

 

 

 

 

 

Balance as of January 1, 2012

1,425

603

743

49

318

3,138

Changes in scope of consolidation

2

1

4

1

8

Additions

396

63

132

17

65

673

Disposals

(382)

(271)

(259)

(11)

(140)

(1,063)

Transfers

(34)

3

(14)

(45)

Exchange differences

(18)

(6)

(4)

(28)

Balance as of December 31, 2012

1,389

399

614

55

226

2,683

Net carrying amount as of December 31, 2012

3,008

1,015

1,278

37

471

6,384

12,193

In connection with the acquisition of Becker Underwood in 2012, there were additions of €806 million to intangible assets, of which €499 million were to goodwill.

The acquisition of the energy storage business of Novolyte Technologies LP, Cleveland, Ohio, resulted in additions of €134 million to intangible assets, of which €55 million were to goodwill.

The amounts recorded under transfers resulted primarily from the reclassification of intangible assets to assets of disposal groups.

In other rights and values, the line item transfers includes the market value adjustments of emission rights recognized directly in equity as of the balance sheet date.

Disposals primarily concerned the derecognition of fully amortized intangible assets.

In 2012, impairments of €75 million were recognized. Impairments are reported under other operating expenses.

A significant share of the impairments occurred in conjunction with the restructuring of the Construction Chemicals division (Functional Solutions segment) in Europe and were related to distribution, supply and similar rights and trademarks. There were no material reversals of impairments in 2012.