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 AG, 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 EBIT, and income from non-integral companies accounted for using the equity method is presented together with income from other financial assets in net income from shareholdings. Similarly, integral and non-integral shareholdings accounted for using the equity method are also shown separately in the balance sheet. The material equity-accounted shareholding that is classified as integral is BASF-YPC Company Ltd., Nanjing, China, in which BASF and Sinopec each hold 50%, and which operates the Verbund site in Nanjing, China. The material non-integral shareholding is the Wintershall Dea AG oil and gas company, which operated as a GmbH until July 2021, and in which BASF holds a 72.7% share of equity (voting right share 67%). Wintershall Dea was operated jointly as a joint venture by partners BASF and LetterOne until October 2021. Through the instatement of independent members to the main body responsible for decisions about relevant activities, BASF has exercised significant influence since November 1, 2021. Accordingly, Wintershall Dea has been classified as an associated company since that date.
Stahl Lux 2 S.A., Luxembourg (BASF interest: 16.32%), Quantafuel ASA, Oslo, Norway (BASF interest: 10.59%), and CIMO Compagnie industrielle de Monthey S.A., Monthey, Switzerland (BASF interest: 15%), are classified as associated companies as BASF is represented in the relevant boards and can thus exercise significant influence over the companies.
10.1 Integral companies accounted for using the equity method
|
2021 |
2020 |
|---|---|---|
Proportional income after taxes |
669 |
234 |
of which joint ventures |
593 |
193 |
associated companies |
76 |
41 |
Other adjustments to income and expenses |
6 |
–14 |
of which joint ventures |
8 |
–5 |
associated companies |
–2 |
–9 |
Income from integral companies accounted for using the equity method |
675 |
220 |
Income from integral companies accounted for using the equity method increased by €455 million in 2021. Of the increase, €343 million related to the shareholding in BASF-YPC Company Ltd., primarily due to higher prices and volumes. In addition, the previous year had also been burdened by scheduled turnarounds of production plants.
|
Joint ventures |
Associated companies |
||
|---|---|---|---|---|
|
2021 |
2020 |
2021 |
2020 |
Carrying amounts according to the equity method as of the beginning of the year |
1,297 |
1,309 |
581 |
576 |
Proportional income after taxes and other adjustments to income and expenses |
601 |
188 |
74 |
32 |
Proportional changes in other comprehensive income |
109 |
–35 |
18 |
–12 |
Total comprehensive income |
710 |
153 |
92 |
20 |
Changes in the scope of consolidation |
– |
– |
– |
– |
Additions |
12 |
– |
614 |
– |
Disposals |
– |
–6 |
–13 |
–8 |
Transfers |
–180 |
–159 |
–573 |
–7 |
Carrying amounts according to the equity method as of the end of the year |
1,839 |
1,297 |
701 |
581 |
Proportional income after taxes and other adjustments to income and expenses for the joint ventures increased mainly because of the improved earnings contribution of BASF-YPC Company Ltd.
Proportional changes of other comprehensive income included income and expense recognized directly in equity and related primarily to currency effects.
Additions for associated companies in 2021 related primarily to the purchase of 49.5% of Vattenfall’s Hollandse Kust Zuid offshore wind farm. The total investment has been reported as a disposal group since December 2021 due to the agreement to sell shares in the wind farm to Allianz Capital Partners.
Disposals in 2021 related to decreases in capital of the associated company, Yara Freeport LLC, Wilmington, Delaware.
In 2021, transfers regarding joint ventures included dividend payments and regarding associated companies they included dividend payments as well as the reclassification of the shareholding in the Hollandse Kust Zuid wind farm in the amount of €565 million to the disposal group.
Additional information on the BASF-YPC Company Ltd. material integral investment accounted for using the equity method
|
December 31, 2021 |
December 31, 2020 |
|---|---|---|
Balance Sheet |
|
|
Noncurrent assets |
960 |
931 |
Current assets |
1,702 |
820 |
| of which marketable securities, cash and cash equivalents | 747 |
229 |
Assets |
2,662 |
1,751 |
|
|
|
Equity |
2,296 |
1,419 |
Noncurrent liabilities |
3 |
3 |
of which financial indebtedness |
– |
– |
Current liabilities |
363 |
329 |
of which financial indebtedness |
– |
54 |
Total equity and liabilities |
2,662 |
1,751 |
|
|
|
Statement of income |
2021 |
2020 |
Sales revenue |
3,615 |
1,995 |
Amortization/impairment and reversals of impairments |
179 |
202 |
Interest income |
7 |
3 |
Interest expenses |
1 |
2 |
Income taxes |
273 |
44 |
Income after taxes and other adjustments to income and expenses |
818 |
132 |
Changes in other comprehensive income |
205 |
–34 |
|
2021 |
2020 |
|---|---|---|
BASF interest |
50% |
50% |
Carrying amount as of the beginning of the year |
710 |
771 |
Proportional income after taxes and other adjustments to income and expenses |
409 |
66 |
Proportional changes in other comprehensive income |
103 |
–17 |
Dividends received |
74 |
110 |
Carrying amount as of the end of the year |
1,148 |
710 |
10.2 Non-integral companies accounted for using the equity method
|
2021 |
2020 |
|---|---|---|
Proportional income after taxes |
435 |
–643 |
of which joint ventures |
– |
–610 |
associated companies |
435 |
–33 |
Other adjustments to income and expenses |
–739 |
–282 |
of which joint ventures |
– |
–280 |
associated companies |
–739 |
–2 |
Income from the divestiture of shares in Solenis |
589 |
– |
Income from non-integral companies accounted for using the equity method |
285 |
–925 |
Income from non-integral companies accounted for using the equity method increased by €1,210 million in 2021 due primarily to income from the divestiture of the shares in Solenis as well as to the improvement in the earnings contribution of Wintershall Dea. The improvement in Wintershall Dea’s earnings in the amount of €545 million was largely the result of higher oil and gas prices as well as lower impairments of assets. In addition to impairments and reversals of impairments recorded for Wintershall Dea (€161 million after tax reported in BASF’s net income from shareholdings), proportional impairments arose in the amount of €680 million before taxes on the amortized fair value adjustments from 2019, which reduced the carrying amount by €420 million. Of that amount, €408 million was attributable to Argentina, and was caused by the planned disposal of operated unconventional oil activities, the increase in the corporate tax rate, an increased country risk, the implementation of a regulated gas price scheme by the Argentine government until 2028, as well as updated price assumptions. Furthermore, the latter led to minor impairments in Norway and Libya. In the previous year, impairments amounting to €791 million after taxes resulted from lower oil and gas price forecasts as well as from changed reserve estimates. The shareholding as a whole is recoverable.
Values in use were determined for the impairment test as of December 31, 2021. The underlying assumptions for production and cost trends as well as the price assumptions for 2023 to 2040 correspond with Wintershall Dea’s. For 2022, BASF anticipates an oil price of $75 per bbl of Brent crude and a gas price (TTF) of $17.2 per mmBtu. After a decline in oil prices to approximately $71 per bbl in 2023, and in gas prices to around $8 per mmBtu in 2023 and 2024, a subsequent increase is assumed at a nominal rate of 2% p.a. for both oil and gas. 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 14.3% (2021: between 3.4% and 14.4%). A decrease of 10% in oil and gas price assumptions for the entire planning period would result in the need for an impairment of about €613 million of the shareholding in Wintershall Dea as a whole. An increase in capital cost rates of one percentage point would lead to additional proportional impairments of approximately €200 million before tax which would burden net income from shareholdings by €70 million and reduce the carrying amount accordingly.
|
Joint ventures |
Associated companies |
||
|---|---|---|---|---|
|
2021 |
2020 |
2021 |
2020 |
Carrying amounts according to the equity method as of the beginning of the year |
10,199 |
12,401 |
675 |
722 |
Proportional income after taxes and other adjustments to income and expenses |
– |
–890 |
–304 |
–35 |
Proportional changes in other comprehensive income |
– |
–1,255 |
216 |
–2 |
Total comprehensive income |
− |
–2,145 |
–88 |
–37 |
Changes in the scope of consolidation |
– |
– |
–18 |
– |
Additions |
– |
– |
– |
– |
Disposals |
– |
– |
– |
–10 |
Transfers |
–10,199 |
–57 |
9,274 |
– |
Carrying amounts according to the equity method as of the end of the year |
− |
10,199 |
9,843 |
675 |
Only the shareholding in Wintershall Dea was included in joint ventures in 2020. For 2021, proportional income after taxes and other adjustments to income and expenses as well as the proportional changes in other comprehensive income for Wintershall Dea are reported in full under associated companies. Until November 1, 2021, when Wintershall Dea became an associated company, proportional income after taxes and other adjustments to income and expenses amounted to €258 million; proportional changes in other comprehensive income amounted to –€757 million until that date.
The proportional changes of other comprehensive income in 2021 predominantly included changes in the fair value of derivatives used to hedge gas prices and currency effects of Wintershall Dea.
Changes in the scope of consolidation included the shareholding in Solenis UK International Ltd, London, United Kingdom. The former Solenis group holding company will be reported under other financial assets until its complete liquidation.
Disposals in 2020 included a capital decrease in Solenis UK International Ltd. in the amount of €10 million.
Transfers in 2021 contained primarily the reclassification of Wintershall Dea from joint ventures to associated companies. In addition, transfers regarding associated companies related to dividend payments by Wintershall Dea GmbH as well as to the reclassification of Solenis shares to the disposal group.
Additional information on the Wintershall Dea material non-integral investment accounted for using the equity method
The following table contains financial information on the Wintershall Dea material non-integral shareholding accounted for using the equity method, including adjustments for fair value made at initial recognition and the resulting effects on earnings.
|
December 31, 2021 |
December 31, 2020 |
|---|---|---|
Balance Sheet |
|
|
Noncurrent assets |
27,216 |
27,881 |
of which goodwill from fair value adjustments |
2,740 |
2,740 |
Current assets |
4,666 |
2,459 |
of which marketable securities, cash and cash equivalents |
2,106 |
821 |
Assets |
31,882 |
30,340 |
|
|
|
Equity attributable to shareholders of Wintershall Dea AG |
13,182 |
14,029 |
Subordinate bonds issued by Wintershall Dea |
1,525 |
– |
Equity |
14,707 |
14,029 |
Noncurrent liabilities |
12,039 |
14,343 |
of which financial indebtedness |
4,055 |
5,886 |
Current liabilities |
5,136 |
1,968 |
of which financial indebtedness |
575 |
471 |
Total equity and liabilities |
31,882 |
30,340 |
|
|
|
Statement of income |
2021 |
2020 |
Sales revenue |
7,804 |
3,642 |
Amortization/impairment and reversals of impairments |
–2,765 |
–3,080 |
Interest income |
135 |
122 |
Interest expenses |
–39 |
–39 |
Income taxes |
–1,498 |
–424 |
Income after taxes and other adjustments to income and expenses |
–473 |
–1,224 |
Changes in other comprehensive income |
296 |
–1,728 |
|
2021 |
2020 |
|---|---|---|
BASF interest in equity attributable to shareholders of Wintershall Dea AG |
72.7% |
72.7% |
Carrying amount as of the beginning of the year |
10,199 |
12,402 |
Proportional income after taxes and other adjustments to income and expenses |
–344 |
–890 |
Proportional changes in other comprehensive income |
216 |
–1,256 |
Dividends received |
488 |
57 |
Carrying amount as of the end of the year |
9,583 |
10,199 |
10.3 Other shareholdings and financial assets
|
2021 |
2020 |
|---|---|---|
Dividends and similar income |
32 |
18 |
Income from the disposal of/write-up of shareholdings |
14 |
136 |
Income from profit transfer agreements/tax allocation to shareholdings |
1 |
3 |
Income from other shareholdings |
47 |
157 |
Expenses from loss transfer agreements |
–72 |
–63 |
Write-downs on/losses from the sale of shareholdings |
–53 |
–78 |
Expenses from other shareholdings |
–125 |
–141 |
Net income from other shareholdings |
–78 |
16 |
Net income from other shareholdings in 2021 decreased year on year by €94 million due primarily to lower income from the measurement of shareholdings at fair value.
|
Dec. 31, 2021 |
Dec. 31, 2020 |
|---|---|---|
Other shareholdings |
514 |
533 |
Long-term securities |
61 |
49 |
Other financial assets |
575 |
582 |