14. Fixed Assets

Accounting policies

Intangible assets

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.

Acquired intangible assets (excluding goodwill) with defined useful lives are generally measured at cost less straight-line amortization and impairments. 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.

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.

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 and were reported as intangible fixed assets in 2022. Emission rights purchased on the market have been recognized under other receivables and miscellaneous assets since 2023. Emissions generated create an obligation to surrender the emission certificates. Intangible assets purchased on the market are subsequently measured at amortized cost. If the fair value is lower than the carrying amount on the balance sheet date, the emission rights are impaired.

Depending on the type of intangible asset, amortization is reported under cost of sales, selling expenses, research and development expenses or other operating expenses.

Property, plant and equipment

Property, plant and equipment are measured at cost less depreciation and impairment over their useful lives. The revaluation method is not applied. Low-value assets are fully expensed in the year of acquisition.

The cost of self-constructed plants includes direct costs, appropriate allocations of material and production overhead costs, and a share of the general administrative costs of the divisions involved in the construction of the plants.

Expenses related to the scheduled maintenance of large-scale plants are capitalized separately and depreciated using the straight-line method over the period until the next planned turnaround. Costs for the replacement of components are recognized as assets if an additional future benefit is expected. The carrying amount of the replaced components is derecognized. Costs for maintenance and repair as part of normal business operations are recognized as an expense.

Investment properties held to realize capital gains or rental income are immaterial. They are valued at the lower of fair value or cost less depreciation.

The estimated useful lives and depreciation methods of property, plant and equipment are based on historical values, plans and estimates. The depreciation methods, useful lives and residual values are reviewed at each balance sheet date. Movable and immovable property, plant and equipment are principally depreciated using the straight-line method.

Borrowing costs: If borrowing costs are directly incurred as part of the acquisition, construction or production of a qualifying asset, they are capitalized as part of the acquisition or production cost of that asset. A qualifying asset is an asset for which the process necessary to make it ready for its intended use or sale is longer than one year. Borrowing costs are capitalized up to the date the asset is ready for its intended use. Borrowing costs were calculated based on a rate of 1.75% (previous year: 1.25%) and adjusted on a country-specific basis, if necessary. All other borrowing costs are recognized as an expense in the period in which they are incurred.

Government grants: Government grants for the acquisition or construction of property, plant and equipment reduce the acquisition or construction cost of the respective assets. Other government grants or government assistance are recognized immediately as other operating income or treated as deferred income and released over the underlying period.

Impairment tests

Impairment tests are carried out on intangible assets, property, plant and equipment, and goodwill whenever certain triggering events indicate potential impairment. External triggering events include, for example, changes in customer industries, technologies used and economic downturns. Internal triggering events for an impairment test include lower product profitability, planned restructuring measures or physical damage to assets. In addition, goodwill is tested for impairment annually.

Impairment tests entail a comparison of the carrying amount and the recoverable amount. The recoverable amount is the higher of fair value less costs to sell and the value in use. As a rule, value in use is determined using the discounted cash flow method. The estimation of cash flows and the assumptions used consider all information available on the respective balance sheet date about the future development of the operating business. Actual future developments may vary. Impairment testing relies upon the cash-generating unit’s long-term earnings forecasts, which are based on macroeconomic trends.

The weighted average cost of capital (WACC) after taxes based on the capital asset pricing model, which is used in calculating the discount for cash flows, plays an important role in impairment testing. It comprises a risk-free interest rate, the market risk premium and an industry-specific spread for the credit risk. Additional important assumptions are the forecasts for the detailed planning period and the terminal growth rates used.

An impairment of assets (excluding goodwill) is recognized if the recoverable amount of the asset is lower than the carrying amount. An impairment is recognized for the difference between the carrying amount and the recoverable amount. If the reasons for impairment of an asset (excluding goodwill) no longer exist, the write-downs are reversed up to the value of the asset, had an impairment not been recognized. Impairments and reversals of impairments are reported in other operating income and expenses.

The goodwill impairment test is based on cash-generating units. At BASF, these largely correspond to the business units, or in individual cases the divisions. If there is a need for impairment, the existing goodwill is, if necessary, completely written off as a first step. If there is further need for impairment, this is allocated to the remaining assets of the cash-generating unit. Goodwill impairments are reported under other operating expenses.

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. These include sales revenue (excluding precious metals), contribution margins, fixed costs and investments from which income from operations before depreciation and amortization and, based on this, the EBITDA margin are determined. Market assumptions regarding, for example, gas and raw materials prices, exchange rates, economic development, inflation expectations and market growth of the respective customer industries are included based on external macroeconomic and industry-specific sources.

In addition, planning is also based on the strategies of the individual strategic business units which comprise the respective cash-generating units. The digitalization and sustainability trends identified in the strategies are thus taken into account in the respective impairment tests.

More information on strategy and identified digitalization and sustainability trends:

• Our Strategic Action Areas
• Our Sustainability Concept

14.1 Explanation of intangible assets

The weighted average amortization periods of intangible assets were as follows:

The following table shows the development of intangible assets.

Additions in 2023 related primarily to acquired know-how in the Agricultural Solutions division, acquired software licenses in the Chemicals segment, as well as internally developed software with no segment allocation.

Disposals of intangible assets with a gross carrying amount of €307 million primarily concerned fully amortized assets.

In 2023, additions to accumulated amortization contained impairments of €267 million. These related mainly to other rights in the Materials segment and resulted from changed market conditions which meant that the economic advantage of access to a precursor no longer applied. The cost of capital after taxes used to determine the relevant value in use was 8.60%, which is 10.08% before taxes.

In both years, BASF’s goodwill was allocated to 20 cash-generating units, which are defined either on the basis of business units or at a higher level.

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. Because there were no material changes in planning assumptions from the previous year, the growth rate for perpetual annuity remained unchanged at –0.7%. In the planning period, the demand for catalysts is still 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.

Increased volatility in gas and raw materials prices can be expected during the year due to geopolitical conflicts. Average gas and raw materials prices are however expected to remain stable over the next three years. These and other macroeconomic factors such as the high, albeit declining, level of inflation in industrial countries will be accounted for in future business expectations.

The annual impairment tests of the 20 cash-generating units were performed in the fourth quarter of 2023. 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 6.47% and 8.56% (2022: between 5.97% and 7.75%). This corresponds to a weighted average cost of capital rate before taxes of between 8.12% and 11.33% (2022: between 6.96% and 10.80%).

An additional impairment test triggered by impairments recognized on plants was performed for the battery materials cash-generating unit on December 31, 2023, It did not lead to any impairments.

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 significant unit exceeding the respective recoverable amounts except in the two units in the Catalysts division, which is allocated to the Surface Technologies segment.

The recoverable amount for the Catalysts (excluding battery materials) cash-generating unit exceeded the carrying amount by €598 million in 2023. A weighted cost of capital after taxes of 8.14% (2022: 7.75%) and an EBITDA margin in the last detailed planning year were used as the basis for calculating the final value of 29.09% (2022: 29.60%) for the impairment test. The recoverable amount would be equal to the unit’s carrying amount if the weighted average cost of capital rose by 1.06 percentage points or the EBITDA margin in the last detailed planning year as the basis for calculating the final value were 3.87 percentage points lower.

A weighted cost of capital after taxes of 8.36% (2022: 7.49%) and an EBITDA margin in the last detailed planning year as the basis for calculating the final value of 11.84% (2022: 10.15%) were used for the annual impairment test of the battery materials cash-generating unit. The recoverable amount for this unit exceeded the carrying amount by €397 million. The recoverable amount would be equal to the unit’s carrying amount if the weighted average cost of capital rose by 1.01 percentage points, the growth rate were 1.64 percentage points lower, or the EBITDA margin in the last detailed planning year as the basis for calculating the final value were 1.74 percentage points lower.

14.2 Explanation of property, plant and equipment

The weighted average depreciation periods were as follows:

The following table shows the development of property, plant and equipment including right-of-use assets recognized by BASF as lessee.

• For more information on leases, see Note 15

Additions to property, plant and equipment arising from investment projects (excluding leases) amounted to €5,255 million in 2023. Investments were made at the following sites in particular: Zhanjiang, China; Ludwigshafen, Germany; Geismar, Louisiana; Antwerp, Belgium; Schwarzheide, Germany; and Chalampé, France. Material investments included the development of infrastructure and technical equipment at the new Verbund site in Zhanjiang, China, construction of the hexamethylenediamine plant in Chalampé, France, construction of infrastructure and production plants for battery materials in Schwarzheide, Germany, as well as modification and capacity expansion of the phosgene plant in Geismar, Louisiana. Investments also included modernization and expansion of the heating oil plant as well as modification of the acid chlorides and chloroformates plant in Ludwigshafen, Germany and construction and expansion of the ethylene oxide and polyethylene oxide production plants in Antwerp, Belgium. Government grants for funding investment measures reduced asset additions by €48 million.

In 2023, impairments of €883 million and reversals of impairments of €6 million were included in accumulated depreciation.

Impairments of €370 million were recognized for construction in progress und buildings (including right-of-use assets from buildings) as well as for technical equipment in the Surface Technologies segment. These impairments were due in particular to the delayed startup of production plants, as well as additional official requirements, and affected two sites in Europe, one of which was fully impaired. The value in use of the remaining partially impaired plants was €448 million. A cost of capital rate after taxes of 8.36% was used in this impairment test. This corresponds to a cost of capital rate before taxes of 11.94%. Resulting from a deteriorated competitive situation, technical equipment at two sites in Europe in the Agricultural Solutions segment was written off in full in the amount of €334 million. Technical equipment in Europe allocated to the Materials segment was written off in full in the amount of €69 million due to reduced expected capacity utilization. Furthermore, an impairment relating primarily to buildings in the Surface Technologies segment was recognized in the amount of €26 million due to the planned closure of a site in North America. The fair value of a building was used in the calculation.

Impairments to construction in progress in the amount of €33 million mainly related to discontinued investment projects.

Reversals of impairments in the amount of €6 million resulted primarily from the sale of a plant impaired at a site in Asia in 2020.

Transfers related mainly to the reclassification of operation-ready assets from construction in progress to other asset categories.

Currency effects reduced property, plant and equipment by €555 million and resulted especially from depreciation of the Chinese renminbi and the U.S. dollar against the euro.