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

Accounting policies

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. In the case of publicly listed associated companies, share prices are included in the impairment test and form the basis of valuation if there is an indication for permanent impairment or reversal of an impairment. 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.

10.1 Integral companies accounted for using the equity method

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.

Income from integral companies accounted for using the equity method decreased by €194 million in 2023. Of the decrease, €175 million related to the shareholding in BASF-YPC Company Ltd. (joint venture) and €28 million to Markor Meiou Chemical (Xinjiang) Co., Ltd., Korla, China (associated company), primarily due to lower sales prices and volumes. Lucura Versicherungs AG, Ludwigshafen am Rhein, Germany (associated company), which made a negative contribution to earnings in the previous year due to losses from the valuation of securities, has been fully consolidated since December 31, 2022.

Proportional changes in other comprehensive income included income and expense recognized directly in equity and related, in addition to currency effects, to changes in the fair value of derivatives in connection with long-term power supply agreements, particularly at the HKZ Investor Holding B.V. joint venture in Arnhem, Netherlands. The company holds shares in the Hollandse Kust Zuid offshore wind farm and manages the power supply agreements with the wind farm.

Changes in the scope of consolidation and disposals in 2023 resulted from the reclassification of Changchun Chemetall Chemicals Co., Ltd., Changchun, China, and in the previous year from Lucura Versicherungs AG, which has been fully consolidated since December 31, 2022. In addition, disposals in 2023 and 2022 included decreases in capital of the associated company, Yara Freeport LLC, Freeport, Texas.

Additions in 2022 mainly related to the shareholding in the HKZ Investor Holding B.V. joint venture.

Transfers primarily included dividend payments by BASF-YPC Company Ltd. (joint venture), Southeast Texas Pipelines LLC, Houston, Texas (joint venture), Heesung Catalysts Corporation, Seoul, South Korea (joint venture), and Markor Meiou Chemical (Xinjiang) Co., Ltd. (associated company) in both 2023 and 2022.

Additional information on the BASF-YPC Company Ltd. material integral investment accounted for using the equity method

10.2 Non-integral companies accounted for using the equity method

The non-integral companies accounted for using the equity method are exclusively associated companies. The material non-integral shareholding is the Wintershall Dea AG oil and gas company, in which BASF holds a 72.7% share. The remaining shares are held by LetterOne. Wintershall Dea is classified as an associated company because, in addition to BASF and LetterOne, independent members are also represented in the board responsible for decisions about relevant activities and BASF can thus only exercise significant influence.

Stahl Lux 2 S.A., Luxembourg (BASF interest: 16.32%), 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.

Income from non-integral companies accounted for using the equity method increased by €4,771 million in 2023 due primarily to a lower burden on earnings from Wintershall Dea AG. In 2022, expenses from the deconsolidation of Wintershall Dea shareholdings in Russia and impairments of assets primarily related to Russia were recognized in the total amount of €6,517 million (BASF interest after taxes). In 2023, however, income was negatively impacted by the addition of restructuring provisions and the depreciation of the Argentine peso.

Values in use were determined in the impairment test in December 2023 for the assets held by Wintershall Dea for which purchase price adjustments exist at BASF level. The assumptions applied for production and cost trends as well as the price assumptions largely correspond with Wintershall Dea’s. This did not lead to any material impairments or reversals of impairments.

The agreement with Harbour Energy plc (Harbour), London, United Kingdom, was reflected in the impairment test of the shareholding in Wintershall Dea: The value of the agreed consideration (39.6% of shares in Harbour and $1.56 billion in cash) was taken into account with regard to the assets and liabilities to be transferred to Harbour. The value contribution of the remaining activities is derived based mainly on the expected compensation values for the expropriated assets in Russia (considering various possible but not unlikely scenarios regarding reimbursement scope and payment timing), the anticipated gain on the sale of the shareholding in WIGA Transport Beteiligungs-GmbH & Co. KG, planned costs for the downsizing and ultimate closure of Wintershall Dea’s head offices, and the cash position.

• For more information on Wintershall Dea, see the chapter on Non-Integral Oil and Gas Business in the Combined Management’s Report

The proportional changes of other comprehensive income in 2023 included changes in the fair value of derivatives used to hedge gas prices and impairments of shareholdings in Russian companies which, pursuant to IFRS 9, were measured at fair value through other comprehensive income. Currency effects particularly arose in 2022 at Wintershall Dea. With the deconsolidation of the Russian shareholdings held by Wintershall Dea, total differences arising from currency translation of €868 million were reclassified as earnings to the income statement in 2022.

Changes in the scope of consolidation and disposals in 2023 resulted from adjustments to the scope of consolidation at Wintershall Dea and the sale of the shareholding in Quantafuel ASA, Oslo, Norway. In addition, disposals in 2023 included decreases in capital of the associated company, Stahl Lux 2 S.A., Luxembourg.

Transfers comprised Wintershall Dea’s dividend payments in both years.

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.

10.3 Other shareholding and financial assets

Net income from other shareholdings in 2023 decreased year on year by €31 million due primarily to higher expenses from the measurement of shareholdings at fair value.

The decline in long-term securities in 2023 resulted mainly from the sale of financial assets at Lucura Versicherungs AG, Ludwigshafen am Rhein, Germany.