14 – Intangible Assets

BASF’s goodwill is allocated to 23 cash-generating units (2017: 24), which are defined either on the basis of business units or at a higher level.

Annual impairment testing was performed in the fourth quarter on the basis of the cash-generating units. Recoverable amounts were determined in most cases using the value in use. This was based on plans approved by company management and their respective cash flows, generally for the next five years. For the period thereafter, a terminal value was calculated using a forward projection from the last detailed planning year as a perpetual annuity. Planning is based on experience, current performance and management’s best possible estimates on the future development of individual parameters, such as raw materials prices and profit margins. Oil and gas prices are also among the main input parameters that provide the basis for the forecast of cash flows in the current financial plans. Market assumptions regarding, for example, economic development and market growth are included based on external macroeconomic and industry-specific sources.

The required discounting of cash flows for impairment testing is calculated using the weighted average cost of capital rate after tax, which is determined using the capital asset pricing model. It comprises a risk-free rate, a market risk premium, and a spread for credit risk based on the respective industry-specific peer group. The calculation also takes into account capital structure and the beta factor of the respective peer group as well as the average tax rate of each cash-generating unit. Impairment tests of the units were conducted assuming a weighted average cost of capital rate after taxes of between 5.83% and 6.90% (2017: between 5.69% and 8.2%). This corresponds to a weighted average cost of capital rate before taxes of between 7.0% and 8.5% (2017: between 7.13% and 11.31%).

After determining the recoverable amount for the cash-generating units, it was established that reasonable possible deviations from the key assumptions would not lead to the carrying amounts of 22 units exceeding their respective recoverable amounts. This is not the case for goodwill for the Pigments unit in the Dispersions & Pigments division.

In 2018, the recoverable amount for Pigments exceeded the carrying amount by €192 million. The weighted average cost of capital rate after taxes used for impairment testing was 5.84% (2017: 6.05%). The recoverable amount would equal the unit’s carrying amount if the weighted average cost of capital rate increased by 0.74 percentage points (2017: by 0.04 percentage points) or if income from operations of the last detailed planning year – as the basis for the terminal value – were 14.39% lower (2017: 0.81% lower).

In addition to goodwill, intangible assets include acquired and internally generated intangible assets. Intangible assets include rights of the Oil & Gas segment, which are amortized using the unit of production method, until the date of reclassification to the disposal group.

Additions refer primarily to software licenses purchased or internally developed software applications. Additions also include concessions for the search and production of oil and gas in Brazil.

Additions from acquisitions amounted to €5,540 million in 2018. Key acquisitions, the acquisition of significant parts of Bayer’s seed and non-selective herbicide businesses and vegetable seed business, as well as the acquisition of Toda America LLC’s battery materials business led to a €1,257 million increase in goodwill. A further addition to goodwill amounting to €4 million arose from a retroactive purchase price payment for the acquisition in 2017 of GRUPO Thermotek based in Monterrey, Mexico. Further additions to intangible assets in connection with the key acquisitions mentioned above amounted to €4,279 million. These related predominantly to know-how, patents and production technologies in the amount of €2,725 million; product rights, licenses and trademarks in the amount of €1,054 million, as well as distribution, supply and similar rights in the amount of €364 million.

Disposals of intangible assets amounting to €294 million were largely attributable to the derecognition of fully amortized assets. The sale of shares in the Aguada Pichana Este concession in Argentina and the divestiture of the production site for styrene butadiene-based paper dispersions in Pischelsdorf, Austria led to a €6 million disposal of goodwill.

Transfers to disposal groups related mainly to the reclassification of intangible assets from the oil and gas business as of September 30, 2018 and, to a lesser extent, from the paper and water chemicals business to the disposal groups.

In 2018, additions to accumulated amortization contained impairments of €4 million. This mainly pertained to impairments of non-strategic know-how, patents and production technologies in the Functional Materials & Solutions segment and, to a lesser extent, to the amortization of unused software licenses and discontinued IT projects. Reversals of impairments of €2 million included in additions to accumulated amortization had a countereffect. These related primarily to distribution rights in the Functional Materials & Solutions segment and to a higher valuation of emissions rights due to increased fair market values. Until September 30, 2018, they also included amortization of rights belonging to the Oil & Gas segment in the amount of €29 million, which were amortized in accordance with the unit of production method.

In addition to goodwill, acquired and internally generated intangible assets, intangible assets included rights belonging to the Oil & Gas segment in 2017, which were amortized in accordance with the unit of production method. As of December 31, 2017, their acquisition costs amounted to €962 million and accumulated amortization to €312 million; amortization in 2017 amounted to €41 million.

Additions from acquisitions amounted to €235 million in 2017. Goodwill rose by €79 million as a result of the following key acquisitions: Rolic AG headquartered in Allschwil, Switzerland; GRUPO Thermotek headquartered in Monterrey, Mexico; Henkel group’s western European construction chemicals business; and ZedX Inc. in Bellefonte, Pennsylvania. A further addition to goodwill amounting to €18 million arose primarily from a retroactive purchase price payment for the acquisition of Chemetall in the previous year.

Further additions to intangible assets in connection with these transactions amounted to €138 million. These related predominantly to product rights, licenses and trademarks as well as know-how, patents and production technologies.

Concessions for oil and gas production included in product rights, licenses and trademarks had a net carrying amount of €234 million in 2017. These authorize the holder to search for and produce oil and gas in specific areas. At the end of the term of a concession, the rights are returned.

Disposals of intangible assets amounting to €221 million were largely attributable to the derecognition of fully amortized software as well as the sale of the production site for electrolytes in Suzhou, China, the sale of the bleaching clay and mineral adsorbents businesses, and the transfer of the global leather chemicals business to the Stahl group. Goodwill of €28 million was derecognized in connection with this.

Transfers largely concerned the confirmed oil and gas deposits in the Maria field in Norway to property, plant and equipment. Non-confirmed deposits in connection with acquired concessions are reported as intangible assets under product rights, licenses and trademarks.

In 2017, accumulated amortization included impairments of €67 million. This mainly pertained to impairments of non-strategic know-how, patents and production technologies in the Functional Materials & Solutions segment and exploration potential for oil and gas production in Norway. This was offset by reversals of impairments totaling €7 million. These related primarily to distribution rights in the Functional Materials & Solutions segment.