BASF Report 2021

14. Intangible Assets

Accounting policies

Acquired intangible assets (excluding goodwill) with defined useful lives are generally measured at cost less straight-line amortization. The useful life is determined using the period of the underlying contract or the period of time over which the intangible asset can be expected to be used.

Impairments are recognized if the recoverable amount of the asset is lower than the carrying amount. The recoverable amount is the higher of either the fair value less costs to sell or the value in use. The value in use is determined on the basis of future cash inflows and outflows, and the weighted average cost of capital after taxes, depending on tax rates and country-related risks. If the reasons for an impairment no longer exist, the write-downs are reversed up to the value of the asset, had an impairment not been recognized. Depending on the type of intangible asset, amortization is reported under cost of sales, selling expenses, research and development expenses or other operating expenses.

Intangible assets with indefinite useful lives are trade names and trademarks that have been acquired as part of acquisitions. These are measured at cost and tested for impairment annually, or if there is an indication that their value has declined.

Internally generated intangible assets primarily comprise internally developed software. Such software and other internally generated intangible assets are measured at cost and amortized over their estimated useful lives. Impairments are recognized if the carrying amount of an asset exceeds the recoverable amount. In addition to those costs directly attributable to the asset, costs of internally generated intangible assets also include an appropriate portion of overhead costs.

The expected useful lives and amortization methods of intangible assets are based on historical values, plans and estimates. The weighted average amortization periods of intangible assets were as follows:

Weighted average amortization in years

 

2021

2020

Distribution and similar rights

15

14

Product rights, licenses and trademarks

25

30

Know-how, patents and production technologies

16

16

Internally generated intangible assets

5

4

Other rights and values

8

5

Emission rights: Emission certificates, which are granted free of charge by the German Emissions Trading Authority (Deutsche Emissionshandelsstelle) or a similar authority in other countries, are recognized in the balance sheet with a value of zero. Emission rights purchased on the market are capitalized at cost as intangible assets. Emissions generated create an obligation to surrender the emission certificates. Intangible assets purchased on the market are subsequently measured at fair value, up to a maximum of the amount of the acquisition costs. If the fair value is lower than the carrying amount on the balance sheet date, the emission rights are impaired.

Goodwill is only written down in the case of an impairment. Impairment testing for goodwill is performed once a year and whenever there is an indication of impairment. Goodwill impairments are not reversed.

BASF’s goodwill is allocated to 20 cash-generating units (2020: 20), which are defined either on the basis of business units or at a higher level.

The respective recoverable amounts were determined using the value in use. Plans approved by company management and their respective cash flows for the next five years were used. 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. Market assumptions regarding, for example, economic development, inflation expectations and market growth are included based on external macroeconomic and industry-specific sources.

The fundamental transformation of the automotive industry will have a significant impact on the emissions catalyst business, which belongs to the Catalysts (excluding battery materials) cash-generating unit. In the planning period, the demand for catalysts is initially expected to remain stable as a result of higher environmental standards. In the medium term, the transition from combustion engines to electromobility will lead to a steady decline in demand. For this reason, the growth rate for perpetual annuity was adjusted from 2.0% in 2020 to –0.7% in 2021.

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.

Goodwill of cash-generating units (Million €)

 

2021

2020

Cash-generating unit

Goodwill

Weighted cost of capital after taxes

Growth ratea

Goodwill

Weighted cost of capital after taxes

Growth ratea

Agricultural Solutions division

3,187

5.54%

2.0%

3,039

4.86%

2.0%

Catalysts division (excluding battery materials)

1,306

6.63%

–0.7%

1,244

6.43%

2.0%

Catalysts division (battery materials)

338

6.51%

2.0%

63

6.76%

2.0%

Personal Care Ingredients in the Care Chemicals division

507

5.54%

2.0%

493

5.21%

2.0%

Surface Treatment in the Coatings division

712

6.67%

2.0%

696

6.42%

2.0%

Other cash-generating units

1,470

5.51%–
6.67%

0.0%–
2.0%

1,424

5.21%–
6.92%

0.0%–
2.0%

Goodwill as of December 31

7,520

 

 

6,959

 

 

a

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

The annual impairment tests of the 20 cash-generating units were performed in the fourth quarter of 2021. 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 were performed on the units assuming a weighted average cost of capital rate after taxes of between 5.51% and 6.67% (2020: between 4.86% and 6.92%). This corresponds to a weighted average cost of capital rate before taxes of between 6.53% and 8.94% (2020: between 6.50% and 8.85%).

After determining the recoverable amounts for the cash-generating units, the conclusion was that reasonable possible deviations from the key assumptions would not lead to the carrying amount of any unit except the Surface Treatments unit exceeding the respective recoverable amounts.

In 2020, a goodwill impairment for the cash-generating Surface Treatment unit was recognized in the amount of €786 million in other expenses due to the significant drop in demand from effects of the coronavirus pandemic and expectations for slow recovery. The outcome of the annual impairment test in 2021 was that the recoverable amount for the cash-generating unit exceeded the carrying amount by €408 million. The recoverable amount would be equal to the carrying amount if the weighted average cost of capital rate rose by 1.05 percentage points or the growth rate were 1.46 percentage points lower.

Development of intangible assets

Development of intangible assets 2021 (Million €)

 

Distri­bution and similar rights

Product rights, licenses and trade­marks

Know-how, patents and production tech­nologies

Internally generated intangible assets

Other rights and valuesa

Goodwill

Total

Cost

 

 

 

 

 

 

 

As of January 1, 2021

2,731

1,387

4,182

234

973

7,734

17,241

Changes in the scope of consolidation

0

6

0

0

6

Additions

2

1

16

32

28

78

Additions from acquisitions

45

89

5

254

392

Disposals

–335

–17

–142

–3

–82

–60

–638

Transfers

0

0

–17

5

8

–4

Transfers to disposal groups

0

0

–13

–13

Currency effects

105

42

176

1

16

400

739

As of December 31, 2021

2,547

1,419

4,304

268

949

8,314

17,802

Accumulated amortization

 

 

 

 

 

 

 

As of January 1, 2021

1,340

275

1,185

140

381

775

4,096

Changes in the scope of consolidation

0

7

0

0

0

7

Additions

171

44

260

26

113

614

of which impairments

0

1

1

2

Disposals

–320

–17

–142

–3

–74

–26

–581

Transfers

0

0

0

0

0

Transfers to disposal groups

0

0

0

0

Currency effects

52

7

52

0

10

45

167

As of December 31, 2021

1,243

316

1,356

164

430

794

4,303

Net carrying amount as of December 31, 2021

1,304

1,103

2,949

104

520

7,520

13,499

a

Including licenses to such rights and values

Additions from acquisitions resulted in the amount of €392 million from the acquisition of the 51% share in BASF Shanshan Battery Materials Co., Ltd., Changsha, China. It is allocated to the Surface Technologies segment.

Disposals of intangible assets amounting to €638 million primarily concerned fully amortized distribution and similar rights in the Industrial Solutions and Nutrition & Care segments. Furthermore, customer relationships in the amount of €72 million and goodwill in the amount of €8 million were derecognized in connection with a divestiture in the Nutrition & Care segment. In addition, goodwill was derecognized through a divestiture in the Surface Technologies segment.

Transfers to disposal groups related to the adjustment of reclassified amounts of the divested pigments business and goodwill of the kaolin minerals business held for sale.

In 2021, additions to accumulated amortization contained impairments of €2 million. They primarily related to unrealized IT projects not allocated to an operational segment.

Development of intangible assets 2020 (Million €)

 

Distri­bution and similar rights

Product rights, licenses and trade­marks

Know-how, patents and production tech­nologies

Internally generated intangible assets

Other rights and valuesa

Goodwill

Total

Cost

 

 

 

 

 

 

 

As of January 1, 2020

2,891

1,433

4,319

196

611

8,105

17,555

Changes in the scope of consolidation

–59

–59

Additions

2

0

40

37

24

103

Additions from acquisitions

123

171

0

376

21

691

Disposals

–147

0

–67

–7

–28

–249

Transfers

–6

0

–34

8

24

–8

Transfers to disposal groups

7

0

13

–14

6

Currency effects

–139

–46

–201

0

–20

–392

–798

As of December 31, 2020

2,731

1,387

4,182

234

973

7,734

17,241

Accumulated amortization

 

 

 

 

 

 

 

As of January 1, 2020

1,323

238

1,072

112

285

3,030

Changes in the scope of consolidation

–57

–57

Additions

217

44

281

33

135

786

1,496

of which impairments

15

2

15

3

0

786

821

Disposals

–143

0

–59

–6

–27

–235

Transfers

6

0

–1

1

–2

4

Transfers to disposal groups

–5

0

0

0

1

–4

Currency effects

–58

–7

–51

0

–11

–11

–138

As of December 31, 2020

1,340

275

1,185

140

381

775

4,096

Net carrying amount as of December 31, 2020

1,391

1,112

2,997

94

592

6,959

13,145

a

Including licenses to such rights and values