10 – Investments Accounted for Using the Equity Method and Other Financial Assets

Joint ventures and associated companies are accounted for using the equity method. The carrying amounts of shareholdings are adjusted annually based on the pro rata share of net income, dividends and other changes in equity. Should there be indications of a reduction in the value of an investment, an impairment test is conducted and, if necessary, an impairment is recognized in the income statement. Furthermore, earnings and the carrying amount are adjusted when accounting policies deviate or as a result of purchase price allocations, which primarily affects Wintershall Dea GmbH, Kassel/Hamburg, Germany.

Exploration and development expenses in the oil and gas business, for which the equity method is applied, are accounted for using the successful efforts method. Under this method, costs of successful exploratory drilling as well as successful and dry development wells are capitalized.

Income from integral companies accounted for using the equity method is presented in the BASF Group’s EBIT, and income from non-integral companies accounted for using the equity method is presented together with income from other financial assets in the BASF Group’s net income from shareholdings. Similarly, integral and non-integral shareholdings accounted for using the equity method are also shown separately in the balance sheet.

10.1 Integral companies accounted for using the equity method

Income from integral companies accounted for using the equity method (Million €)

 

2020

2019

Proportional income after taxes

234

284

of which joint ventures

193

205

associated companies

41

79

Other adjustments to income and expenses

–14

–19

of which joint ventures

–5

–21

associated companies

–9

2

Income from integral companies accounted for using the equity method

220

265

Income from integral companies accounted for using the equity method decreased by €45 million in 2020. Of the decrease, €40 million related to the shareholding in BASF-YPC Company Ltd., Nanjing, China, primarily due to the scheduled turnarounds of the production plants.

Reconciliation of the carrying amount of integral shareholdings accounted for using the equity method (Million €)

 

Joint ventures

Associated companies

 

2020

2019

2020

2019

Carrying amount according to the equity method as of the beginning of the year

1,309

1,408

576

514

Proportional income after taxes and other adjustments to income and expenses

188

184

32

81

Proportional changes of other comprehensive income

–35

16

–12

Total comprehensive income

153

200

20

81

Changes in the scope of consolidation

Additions

5

Disposals

–6

–27

–8

Transfers

–159

–277

–7

–19

Carrying amount according to the equity method as of the end of the year

1,297

1,309

581

576

Proportional changes of other comprehensive income included income and expense recognized directly in equity and related primarily to currency effects. Of that, –€17 million related to BASF-YPC Company Ltd. in 2020, and €9 million in 2019.

Disposals in 2020 included primarily a capital decrease in the amount of €8 million at Yara Freeport LLC, Wilmington, Delaware.

Transfers in 2020 included dividend payments from BASF-YPC Company Ltd. in the amount of €110 million (2019: €200 million).

Financial information on the material integral investment accounted for using the equity method

The following table contains financial information on the material integral company accounted for using the equity method, BASF-YPC Company Ltd.

Financial information on BASF-YPC Company Ltd., Nanjing, China (100%) (Million €)

 

December 31,
2020

December 31,
2019

Balance Sheet

 

 

Noncurrent assets

931

1,032

Current assets

820

768

of which marketable securities, cash and cash equivalents

229

148

Assets

1,751

1,800

 

 

 

Equity

1,419

1,542

Noncurrent liabilities

3

3

of which financial indebtedness

Current liabilities

329

255

of which financial indebtedness

54

28

Total equity and liabilities

1,751

1,800

 

 

 

Statement of income

January 1–
December 31,
2020

January 1–
December 31,
2019

Sales revenue

1,995

2,536

Amortization/impairment and reversals of impairments

202

209

Interest income

3

3

Interest expenses

2

4

Income taxes

44

71

Total comprehensive income

98

230

The carrying amount accounted for using the equity method of the shareholding in BASF-YPC Company Ltd. amounted to €710 million as of December 31, 2020, and €772 million as of December 31, 2019.

10.2 Non-integral companies accounted for using the equity method

Income from non-integral companies accounted for using the equity method (Million €)

 

2020

2019

Proportional income after taxes

–643

149

of which joint ventures

–610

207

associated companies

–33

–58

Other adjustments to income and expenses

–282

–298

of which joint ventures

–280

–293

associated companies

–2

–5

Income from non-integral companies accounted for using the equity method

–925

–149

Income from non-integral companies accounted for using the equity method decreased by €776 million in 2020. This was primarily due to impairments of assets of Wintershall Dea Group amounting to €791 million as a result of lower oil and gas price forecasts and changed reserve estimates. As part of the impairment tests, the expected cash flows in euros from the exploration and production assets held by Wintershall Dea were updated and discounted. This assumed an oil price of $43 per bbl of Brent crude in 2021 that expected rises to a nominal $62 per bbl by 2023 and then develops in line with cost increases. The development of gas prices assumed a price of $3.8 per mmBtu (TTF) for 2021 that rises to a nominal $7.7 per mmBtu in 2025 and then follows the expected cost trend. The expected cash flows were discounted using country-specific cost of capital rates, which reflect the relevant country risks and tax rates. The cost of capital rates in euros, calculated using the capital asset pricing model, were between 3.4% and 14.4%. A decrease of 10% in price assumptions for the entire planning period would result in the need for an impairment of about €320 million of the shareholding as a whole. The increase in capital cost rates of one percentage point would not lead to an impairment of the shareholding as a whole but would, however, result in an impairment of around €250 million for value components in individual countries that were recognized in connection with BASF’s purchase price allocation.

Reconciliation of the carrying amount of non-integral investments accounted for using the equity method (Million €)

 

Joint ventures

Associated companies

 

2020

2019

2020

2019

Carrying amount according to the equity method as of the beginning of the year

12,401

722

284

Proportional income after taxes and other adjustments to income and expenses

–890

–86

–35

–63

Proportional changes of other comprehensive income

–1,255

–50

–2

–24

Total comprehensive income

–2,145

–136

–37

–87

Changes in the scope of consolidation

Additions

14,078

590

Disposals

–1,541

–10

Transfers

–57

–65

Carrying amount according to the equity method as of the end of the year

10,199

12,401

675

722

Only the shareholding in Wintershall Dea GmbH is included in joint ventures.

Proportional income after taxes and other adjustments to income and expenses also contain effects from the carryforward of fair value adjustments made at initial recognition of Wintershall Dea.

The proportional changes of other comprehensive income primarily included currency effects on the assets of the Wintershall Dea Group.

Disposals included to a capital decrease in Solenis UK International Ltd., London, United Kingdom, in the amount of €10 million in 2020.

Transfers contained dividend payments of €57 million by Wintershall Dea GmbH in 2020. Transfers in 2019 included the reclassification of the proportional carrying amount attributable to the share of BASF Colors & Effects Switzerland AG in CIMO Compagnie industrielle de Monthey S.A., Monthey, Switzerland, to the assets of the disposal group for the pigments business.

Financial information on the material non-integral investment accounted for using the equity method

The following table contains financial information on the material non-integral shareholding accounted for using the equity method, the Wintershall Dea Group, including adjustments for fair value made at initial recognition and the resulting effects on earnings.

Financial information on the Wintershall Dea Group, Kassel/Hamburg, Germany (100%) (Million €)

 

December 31,
2020

December 31,
2019

Balance Sheet

 

 

Noncurrent assets

27,881

31,920

of which goodwill from fair value adjustments

2,740

2,688

Current assets

2,459

2,589

of which marketable securities, cash and cash equivalents

821

814

Assets

30,340

34,509

 

 

 

Equity

14,029

17,058

Noncurrent liabilities

14,343

15,273

of which financial indebtedness

5,886

6,028

Current liabilities

1,968

2,178

of which financial indebtedness

471

576

Total equity and liabilities

30,340

34,509

 

 

 

Statement of income

January 1–
December 31,
2020

May 1–
December 31,
2019

Sales revenue

3,891

3,272

Amortization/impairment and reversals of impairments

–3,080

–1,544

Interest income

122

75

Interest expenses

–39

–68

Income taxes

–424

–286

Total comprehensive income

–2,981

–187

10.3 Other shareholdings and financial assets

Net income from other shareholdings (Million €)

 

2020

2019

Dividends and similar income

18

15

Income from the disposal of / write-up of shareholdings

136

17

Income from profit transfer agreements / tax allocation to shareholdings

3

1

Income from other shareholdings

157

33

Expenses from loss transfer agreements

–63

–55

Write-downs on / losses from the sale of shareholdings

–78

–23

Expenses from other shareholdings

–141

–78

Net income from other shareholdings

16

–45

Net income from other shareholdings increased by €61 million in 2020. This resulted primarily from the measurement of shareholdings at fair value.

Carrying amount of other financial assets (Million €)

 

December 31,
2020

December 31,
2019

Other shareholdings

533

501

Long-term securities

49

135

Other financial assets

582

636