14 – Intangible assets

The goodwill of BASF is allocated to 23 cash-generating units (2013: 27) 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 in general 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 impairment testing is determined using the Capital Asset Pricing Model. It comprises a risk-free rate, a market risk premium as well as the spread for credit risk usual in the industry, determined, for the first time in 2014, on the basis of peer groups. The calculation also takes into account the usual capital structure and the beta factor common in the industry as well as the average tax rate of each cash-generating unit. Impairment tests were conducted assuming a weighted average cost of capital rate after tax between 6.60% and 7.76% (2013: 7.47% and 7.57%). This is equivalent to weighted average costs before tax of between 8.19% and 10.3% (2013: 9.31% and 11.27%). For the cash-generating unit Exploration & Production in the Oil & Gas segment, a cost of capital rate after tax of 9.46% was applied (2013: 8.83%), or before tax of 17.72% (2013: 17.39%), taking 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 Construction Chemicals division, which arose in connection with the acquisition of Degussa Bauchemie in the 2006 financial year, is excluded from this. In the 2014 financial year, the recoverable amount of Construction Chemicals exceeded the carrying amount by around €195 million. Earnings in the Construction Chemicals division were influenced by the growth of the construction industry. The weighted average cost of capital rate used for the impairment testing of Construction Chemicals was 7.76% (2013: 7.52%). The recoverable value of the Construction Chemicals unit would equal the book value if the cost of capital rate increased by 0.5 percentage points or income from operations of the last detailed planning year, as the basis for the terminal value, were lower by 9.10%.

The impairment tests resulted in no impairment losses on goodwill in 2014, as in the previous year.

Goodwill of cash-generating units (in million €)

 

 

2014

2013

Cash-generating unit

 

Goodwill

Growth rate1

Goodwill

Growth rate1

1

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

Crop Protection division

 

1,931

2.0%

1,796

2.0%

Exploration & Production in the Oil & Gas segment

 

1,765

(2.0%)

1,023

(2.0%)

Catalysts division (excluding battery materials)

 

1,360

2.0%

1,223

2.0%

Construction Chemicals division

 

675

1.5%

642

1.5%

Personal care ingredients in the Care Chemicals division

 

516

2.0%

473

2.0%

Pigments in the Dispersions & Pigments division

 

450

2.0%

352

2.0%

Other cash-generating units

 

1,444

0.0–2.0%

1,427

0.0–2.0%

Goodwill as of December 31

 

8,141

 

6,936

 

Development of intangible assets 2014 (in 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, 2014

 

4,201

1,366

1,984

77

856

6,936

15,420

Changes in scope of consolidation

 

15

15

Additions

 

1

29

38

12

104

184

Additions from acquisitions

 

109

623

732

Disposals

 

(73)

(153)

(82)

(4)

(128)

(28)

(468)

Transfers

 

247

1

(12)

(192)

44

Exchange differences

 

(362)

58

57

1

34

610

398

Balance as of December 31, 2014

 

4,014

1,410

2,000

86

674

8,141

16,325

Accumulated amortization

 

 

 

 

 

 

 

 

Balance as of January 1, 2014

 

1,664

429

695

43

265

3,096

Changes in scope of consolidation

 

15

15

Additions

 

338

55

158

20

76

647

Disposals

 

(73)

(109)

(82)

(4)

(106)

(374)

Transfers

 

15

(20)

(5)

Exchange differences

 

(65)

4

23

17

(21)

Balance as of December 31, 2014

 

1,879

379

809

59

232

3,358

Net carrying amount as of December 31, 2014

 

2,135

1,031

1,191

27

442

8,141

12,967

Besides goodwill, intangible assets include acquired intangible assets as well as internally generated intangible assets.

In connection with the acquisition of assets from Statoil ASA, there were additions of €704 million to intangible assets in 2014. Of this amount, €121 million pertained to exploration rights and licenses and €583 million to goodwill.

Concessions for oil and gas production under the category product rights, licenses and trademarks with a net carrying amount of €579 million in 2014 (2013: €457 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 and market value adjustments of emission rights recognized directly in equity as of the balance sheet date.

Disposals were largely attributable to the sale of selected oil and gas investments in the North Sea to the Hungarian MOL Group.

Impairments of €56 million were recognized in 2014. Due to the weak development of the coal mining business in China, impairments of €40 million relating to distribution, supply and similar rights were recognized in the Construction Chemicals division. The recoverable amount equals the value in use amounting to €10 million. It was determined using a weighted average cost of capital before taxes of 11.02%.

Transfers included a write-up of €5 million in 2014.

Development of intangible assets 2013 (in 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, 2013

 

4,438

1,416

1,892

92

731

6,448

15,017

Changes in scope of consolidation

 

1

3

1

3

8

Additions

 

5

18

14

103

140

Additions from acquisitions

 

33

52

198

88

787

1,158

Disposals

 

(46)

(104)

(71)

(31)

(48)

(18)

(318)

Transfers

 

(2)

3

10

3

14

Exchange differences

 

(225)

(6)

(51)

(1)

(29)

(287)

(599)

Balance as of December 31, 2013

 

4,201

1,366

1,984

77

856

6,936

15,420

Accumulated amortization

 

 

 

 

 

 

 

 

Balance as of January 1, 2013

 

1,424

399

614

55

241

2,733

Changes in scope of consolidation

 

1

1

1

3

Additions

 

308

67

166

19

81

641

Disposals

 

(41)

(38)

(71)

(31)

(45)

(226)

Transfers

 

(4)

(4)

Exchange differences

 

(28)

(14)

(9)

(51)

Balance as of December 31, 2013

 

1,664

429

695

43

265

3,096

Net carrying amount as of December 31, 2013

 

2,537

937

1,289

34

591

6,936

12,324

There were additions of €412 million to intangible assets in 2013 in connection with the acquisition of Pronova BioPharma ASA. Of this amount, among other things, €164 million pertained 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% 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.

In other rights and values, the line item transfers includes additions and 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.