2.5 – Discontinued Operations / Disposal Groups Discontinued operations With the binding agreement on the sale of BASF’s construction chemicals business to a subsidiary of Lone Star, this business is presented as a discontinued operation. Through the agreed sale of the business, BASF experts, recognized across the industry for their know-how and competence in construction chemicals, will be prepared for further growth with the industry-specific approach of Lone Star. Impairments were not recorded for the discontinued construction chemicals business on the date of reclassification to discontinued operations or at the end of the reporting period. The amounts in the following tables illustrate the consolidated contribution of discontinued operations. Earnings from the discontinued construction chemicals business are as follows: (XLS:) XLS Statement of income from the discontinued construction chemicals business (Million €) 2019 2018 Sales revenue 2,553 2,455 Cost of sales (1,412) (1,405) Gross profit on sales 1,141 1,050 Selling expenses (866) (873) General administrative expenses (66) (70) Research and development expenses (36) (34) Other operating income and expenses (121) (14) Income from companies accounted for using the equity method 0 0 EBIT 52 59 Financial result (4) (4) Income before income taxes 48 55 Income taxes (24) (21) Income after income taxes 24 34 of which attributable to noncontrolling interests 5 11 Income after noncontrolling interests 19 23 Earnings per share from discontinued operations € 0.02 0.03 Depreciation and amortization of property, plant and equipment and intangible assets (162) (137) of which impairments and reversals of impairments (1) (1) The carrying amounts of the balance sheet items of the discontinued operations are presented in the table “Disposal groups as of December 31, 2019” below. The discontinued construction chemicals business accounted for the following amounts in BASF’s statement of cash flows: (XLS:) XLS Cash flows from the discontinued construction chemicals business (Million €) 2019 2018 Cash flows from operating activities 219 128 Cash flows from investing activities (107) (74) Cash flows from financing activities (18) 1 Total 94 55 The oil and gas business has been presented as a discontinued operation since the signing of the binding agreement between BASF and LetterOne to merge their respective activities on September 27, 2018. The disposal group was derecognized on closing of the transaction on April 30, 2019. Earnings from the discontinued oil and gas business until April 2019 were as follows: (XLS:) XLS Statement of income from the discontinued oil and gas business (Million €) January 1– April 30, 2019 2018 Sales revenue 1,318 4,094 Cost of sales (433) (2,024) Gross profit on sales 885 2,070 Selling expenses (60) (94) General administrative expenses (33) (68) Research and development expenses (8) (26) Other operating income and expenses (273) (248) Gain on the disposal before income taxes 5,828 – Income from companies accounted for using the equity method – 99 EBIT 6,339 1,733 Financial result (37) (19) Income before income taxes 6,302 1,714 Income taxes (381) (885) Income after income taxes 5,921 829 of which attributable to noncontrolling interests 18 61 Income after noncontrolling interests 5,903 768 Earnings per share from discontinued operations € 6.43 0.83 The effects of the disposal of the discontinued oil and gas business are presented in the following table: (XLS:) XLS Calculation of disposal gain on the discontinued oil and gas business (Million €) April 30, 2019 Fair value 72.7% Wintershall Dea GmbH 14,078 Disposed net assets (7,540) Assets of the disposal group (15,597) Reinstated receivables 2,246 Liabilities of the disposal group 6,447 Reinstated liabilities (636) Recycling of income and expenses previously recognized directly in equity (recognized in income on disposal) (870) Noncontrolling interests 160 Income taxes (144) Disposal gain after taxes 5,684 The discontinued oil and gas business accounted for the following amounts in BASF’s statement of cash flows: (XLS:) XLS Cash flows from the discontinued oil and gas business (excluding effects from the divestiture) (Million €) January 1– April 30, 2019 2018 Cash flows from operating activities 456 1,554 Cash flows from investing activities (263) (1,011) Cash flows from financing activities (50) (346) Total 143 197 The shares held in Wintershall Dea GmbH were initially measured at fair value as of the date of deconsolidation on April 30, 2019, using the discounted cash flow method on the basis of the income approach according to IFRS 13.62. Fair value is calculated as the present value of future cash inflows and outflows on the basis of unobservable inputs (Level 3). Significant inputs are assumptions on the long-term development of oil and gas prices, which were based, among other things, on market values and expert assessments. The valuation of Wintershall Dea GmbH as of April 30, 2019, assumes an oil price of $66 per bbl (Brent) and a gas price of approximately €16 per MWh (roughly $6 per mmBtu) for 2020 that increases moderately in the medium to long term. The estimation of cash flows and the assumptions are based on relevant information on the future development of the operating business on the measurement date. A model based on a field-related valuation approach was used for the exploration and production business. This took into account the expected cash flows as well as the tax payments in the individual countries. The period under consideration includes the planned license terms and the production profiles of the included oil and gas fields. A significant factor here is the cost of capital rate, which takes into consideration the country risk for the country concerned and the applicable tax rate. Other components are a risk-free interest rate, a market risk premium and a spread for credit risk based on the respective industry-specific peer group. Taking into account these parameters, a cost of capital rate after tax of between 6.17% and 11.49% was used. For the transportation business, regulated gas transportation rates and specific average cost of capital rates were used where relevant. The cost of capital rate after tax was between 5.52% and 5.91%. The valuation also took into account expected synergy effects from the merger due to lower ongoing operating costs or from the optimization of investment measures. Initial recognition at fair value (€14.1 billion) uncovered hidden reserves and liabilities. In line with the purchase price allocation, the hidden reserves and liabilities were mainly attributable to exploration and production assets. Of other comprehensive income after taxes attributable to BASF SE shareholders totaling €949 million (2018: minus €608 million), minus €8 million (2018: €10 million) related to the discontinued construction chemicals business, €1,034 million (2018: minus €102 million) to the discontinued oil and gas business, and minus €77 million (2018: minus €516 million) to continuing operations. Groups of assets and liabilities held for sale (disposal groups) On January 31, 2019, following the approval of all relevant authorities, BASF and Solenis concluded the transfer of BASF’s paper and water chemicals business to Solenis. The disposal group was derecognized on divestiture of the paper and water chemicals business, and a shareholding accounted for using the equity method in the amount of €590 million was added and accounted for in the sales price. The calculation of the disposal gain is presented in the following table: (XLS:) XLS Calculation of disposal gain on the paper and water chemicals business (Million €) January 31, 2019 Sales price 768 Disposed net assets (611) Assets of the disposal group (504) Reinstated assets 43 Liabilities of the disposal group – Reinstated liabilities (150) Disposal gain before taxes 157 Tax expense (44) Disposal gain after taxes 113 With the agreement on the acquisition of the global pigments business by the fine chemical company DIC, the affected assets and liabilities were reclassified to a disposal group. The business is allocated to the Dispersions & Pigments division. An impairment test was conducted for the disposal group for the pigments business on December 31, 2019. In accordance with IFRS 5, the fair value less costs to sell must be used as the recoverable amount and compared with the carrying amount. The recoverable amount was determined as of December 31, 2019 by discounting expected cash flows until closing, including income from the sale, at a WACC of 7.98%. This resulted in an impairment in the amount of €73 million, which reduced the goodwill of the disposal group for the pigments business accordingly. The values for the disposal groups are presented in the following table. Other comprehensive income included minus €61 million for the construction chemicals business disposal group and minus €79 million for the pigments business as of December 31, 2019. (XLS:) XLS Disposal groups as of December 31, 2019 (Million €) Pigments business Construction chemicals business Total Balance sheet Goodwill (336) (772) (1,108) Other intangible assets (22) (537) (559) Property, plant and equipment (266) (503) (769) Investments accounted for using the equity method (65) – (65) Other financial assets (8) (28) (36) Deferred tax assets (58) (22) (80) Other receivables and miscellaneous assets (2) (1) (3) Noncurrent assets (757) (1,863) (2,620) Inventories (383) (299) (682) Accounts receivable, trade (109) (522) (631) Other receivables and miscellaneous assets (22) (30) (52) Marketable securities – – – Cash and cash equivalents (7) (21) (28) Current assets (521) (872) (1,393) Assets of the disposal group 1,278 2,735 4,013 Provisions for pensions and similar obligations (213) (154) (367) Other provisions (9) (23) (32) Deferred tax liabilities (17) (118) (135) Financial indebtedness – (5) (5) Other liabilities (15) (32) (47) Noncurrent liabilities (254) (332) (586) Accounts payable, trade (51) (191) (242) Provisions (20) (82) (102) Tax liabilities (6) (13) (19) Financial indebtedness – (10) (10) Other liabilities (27) (48) (75) Current liabilities (104) (344) (448) Liabilities of the disposal group 358 676 1,034 Net assets 920 2,059 2,979 back next