15 – Property, Plant and Equipment

Accounting policies

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.

As lessee, BASF generally recognizes for all leases right-of-use assets and lease liabilities in the balance sheet at the present value of financial commitments entered.

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.

Both movable and immovable fixed assets are principally depreciated using the straight-line method. 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.

The weighted average depreciation periods of continuing operations were as follows:

If there is indication of a possible cause for impairment, an impairment test is performed. Impairments to property, plant and equipment are recognized if the recoverable amount of the asset is lower than the carrying amount. The measurement is based on 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 weighted average cost of capital after taxes (determined using the capital asset pricing model), depending on relevant tax rates and country-related risks. An impairment is recognized for the difference between the carrying amount and the recoverable amount. 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. Impairments and reversals of impairments are reported in other operating income and expenses.

Borrowing costs: If directly incurred as part of the acquisition, construction or production of a qualifying asset 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 1.5% (previous year: 1.5%) 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 related to 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.

Additions to property, plant and equipment arising from investment projects (excluding leases) amounted to €3,007 million in 2020. Investments were made at the following sites in particular: Ludwigshafen, Germany; Antwerp, Belgium; Geismar, Louisiana; and Shanghai, China. Material investments included the expansion of the vitamin A plant in Ludwigshafen, Germany, and construction of an ethylene oxide and polyethylene oxide production plant in Antwerp, Belgium. Investments also included the upgrade and capacity expansion of the MDI synthesis unit in Geismar, Louisiana. Government grants for funding investment measures reduced asset additions by €11 million. The additions to right-of-use machinery and technical equipment related mainly to a syngas separation unit facility in Geismar, Louisiana.

Additions from acquisitions resulted from the acquisition of Solvay’s global polyamide business.

In 2020, impairments of €2,059 million were included in accumulated depreciation. The impairments related to all segments and were mainly attributable to the economic effects of the coronavirus pandemic and to restructuring measures.

Of all impairments in the Chemicals segment, the majority (€550 million) was attributable to impairments resulting from ongoing excess supply and the associated decrease in prices and margins. The impairments concerned nearly all asset classes, especially machinery and technical equipment (€414 million), construction in progress (€53 million) and buildings (€42 million). They primarily comprised the depreciation of individual production plants in Europe, North America and Asia. The values in use were calculated using cost of capital rates after taxes between 6.76% and 7.85% and led to full depreciation in the amount of €456 million.

The majority of impairments (€748 million) in the Materials segment was also attributable to ongoing excess supply – amplified by the coronavirus pandemic – as well as to the associated decrease in prices and margins. They related to nearly all classes of fixed assets, especially machinery and technical equipment (€627 million), construction in progress (€77 million) and buildings (€40 million). They primarily comprised the depreciation of individual production plants in Europe, North America and Asia. The values in use were calculated using cost of capital rates after taxes between 6.92% and 8.46% and led to full depreciation in the amount of €676 million.

Of all impairments in the Industrial Solutions segment, €37 million were related to production plants in Asia and resulted from decreased production and the expectation of a slow recovery in the automotive and aviation industries due to the effects of the coronavirus pandemic. Furthermore, plants in North America were impaired in the amount of €43 million in connection with restructuring. The values in use were calculated using cost of capital rates after taxes between 6.66% and 7.77%. Impairments related chiefly to machinery and technical equipment (€54 million) and buildings (€17 million).

Of all impairments in the Surface Technologies segment, the majority (€197 million) related to the partial impairment of the production network for catalysts in Europe with sites in Germany, Poland and South Africa, due mainly to the economic impact of the coronavirus pandemic and current market developments in the automotive industry. The value in use was calculated using a cost of capital rate after taxes of 7.13%. The impairments concerned nearly all asset classes, with €123 million attributable to machinery and technical equipment, €54 million to buildings and €9 million to construction in progress. Furthermore, full depreciation of production plants and construction in progress in Europe, North America and Asia was recognized in the total amount of €41 million.

Of all impairments in the Nutrition & Care segment, €20 million were attributable to discontinued investment projects in Europe and Asia. The impairments related in particular to miscellaneous equipment and fixtures as well as to construction in progress

Impairments in the Agricultural Solutions segment arose in the amount of €280 million almost completely from measures to streamline the glufosinate-ammonium production network in North America and Europe. These impairments concerned nearly all asset classes, with €132 million attributable to machinery and technical equipment, €60 million to buildings and €42 million to right-of-use building assets.

Disposals of property, plant and equipment included the sale of a production site in Denmark.

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

Transfers to disposal groups related to amounts reclassified to the discontinued construction chemicals business and to the discontinued pigments business.

Currency effects lowered property, plant and equipment by €934 million and resulted mainly from the depreciation of the U.S. dollar and the Brazilian real against the euro.

Additions to property, plant and equipment arising from investment projects (excluding leases) amounted to €3,390 million in 2019. Investments were made at the following sites in particular: Ludwigshafen, Germany; Antwerp, Belgium; Shanghai, China; Geismar, Louisiana; and Freeport, Texas. Material investments included the acetylene plant as well as the expansion of the vitamin A plant in Ludwigshafen, Germany. Furthermore, additions included renovations and major repairs to the steam cracker and the construction of a new propane tank in Antwerp, Belgium. Investments also included the upgrade and capacity expansion of the MDI synthesis unit in Geismar, Louisiana. Government grants for funding investment measures reduced asset additions by €9 million.

In 2019, impairments of €315 million and reversals of impairments of €6 million were included in accumulated depreciation. The impairments were primarily attributable to construction in progress resulting from discontinued investment projects in North America within the Petrochemicals division. Furthermore, impairments on buildings and technical equipment at one production site in Europe were also included in accumulated depreciation.

Disposals of property, plant and equipment included the sale of a building complex in Switzerland.

Transfers related mainly to the reclassification of operation-ready assets from construction in progress to other asset categories. Transfers also included reclassification of existing finance leases as of December 31, 2018 to right-of-use assets due to the initial application of IFRS 16.

Transfers to disposal groups included property, plant and equipment, which had been reclassified to the disposal groups for the pigments business and the construction chemicals business.

Currency effects raised property, plant and equipment by €190 million and resulted mainly from appreciation of the U.S. dollar against the euro.