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 GmbH, 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 the BASF Group’s EBIT, and income from non-integral companies accounted for using the equity method is presented together with income from other financial assets in the BASF Group’s net income from shareholdings. Similarly, integral and non-integral shareholdings accounted for using the equity method are also shown separately in the balance sheet. 10.1 Integral companies accounted for using the equity method (XLSX:) XLS Income from integral companies accounted for using the equity method (Million €) 2020 2019 Proportional income after taxes 234 284 of which joint ventures 193 205 associated companies 41 79 Other adjustments to income and expenses –14 –19 of which joint ventures –5 –21 associated companies –9 2 Income from integral companies accounted for using the equity method 220 265 Income from integral companies accounted for using the equity method decreased by €45 million in 2020. Of the decrease, €40 million related to the shareholding in BASF-YPC Company Ltd., Nanjing, China, primarily due to the scheduled turnarounds of the production plants. (XLSX:) XLS Reconciliation of the carrying amount of integral shareholdings accounted for using the equity method (Million €) Joint ventures Associated companies 2020 2019 2020 2019 Carrying amount according to the equity method as of the beginning of the year 1,309 1,408 576 514 Proportional income after taxes and other adjustments to income and expenses 188 184 32 81 Proportional changes of other comprehensive income –35 16 –12 – Total comprehensive income 153 200 20 81 Changes in the scope of consolidation – – – – Additions – 5 – – Disposals –6 –27 –8 – Transfers –159 –277 –7 –19 Carrying amount according to the equity method as of the end of the year 1,297 1,309 581 576 Proportional changes of other comprehensive income included income and expense recognized directly in equity and related primarily to currency effects. Of that, –€17 million related to BASF-YPC Company Ltd. in 2020, and €9 million in 2019. Disposals in 2020 included primarily a capital decrease in the amount of €8 million at Yara Freeport LLC, Wilmington, Delaware. Transfers in 2020 included dividend payments from BASF-YPC Company Ltd. in the amount of €110 million (2019: €200 million). Financial information on the material integral investment accounted for using the equity method The following table contains financial information on the material integral company accounted for using the equity method, BASF-YPC Company Ltd. (XLSX:) XLS Financial information on BASF-YPC Company Ltd., Nanjing, China (100%) (Million €) December 31,2020 December 31,2019 Balance Sheet Noncurrent assets 931 1,032 Current assets 820 768 of which marketable securities, cash and cash equivalents 229 148 Assets 1,751 1,800 Equity 1,419 1,542 Noncurrent liabilities 3 3 of which financial indebtedness – – Current liabilities 329 255 of which financial indebtedness 54 28 Total equity and liabilities 1,751 1,800 Statement of income January 1–December 31,2020 January 1–December 31,2019 Sales revenue 1,995 2,536 Amortization/impairment and reversals of impairments 202 209 Interest income 3 3 Interest expenses 2 4 Income taxes 44 71 Total comprehensive income 98 230 The carrying amount accounted for using the equity method of the shareholding in BASF-YPC Company Ltd. amounted to €710 million as of December 31, 2020, and €772 million as of December 31, 2019. 10.2 Non-integral companies accounted for using the equity method (XLSX:) XLS Income from non-integral companies accounted for using the equity method (Million €) 2020 2019 Proportional income after taxes –643 149 of which joint ventures –610 207 associated companies –33 –58 Other adjustments to income and expenses –282 –298 of which joint ventures –280 –293 associated companies –2 –5 Income from non-integral companies accounted for using the equity method –925 –149 Income from non-integral companies accounted for using the equity method decreased by €776 million in 2020. This was primarily due to impairments of assets of Wintershall Dea Group amounting to €791 million as a result of lower oil and gas price forecasts and changed reserve estimates. As part of the impairment tests, the expected cash flows in euros from the exploration and production assets held by Wintershall Dea were updated and discounted. This assumed an oil price of $43 per bbl of Brent crude in 2021 that expected rises to a nominal $62 per bbl by 2023 and then develops in line with cost increases. The development of gas prices assumed a price of $3.8 per mmBtu (TTF) for 2021 that rises to a nominal $7.7 per mmBtu in 2025 and then follows the expected cost trend. 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 14.4%. A decrease of 10% in price assumptions for the entire planning period would result in the need for an impairment of about €320 million of the shareholding as a whole. The increase in capital cost rates of one percentage point would not lead to an impairment of the shareholding as a whole but would, however, result in an impairment of around €250 million for value components in individual countries that were recognized in connection with BASF’s purchase price allocation. (XLSX:) XLS Reconciliation of the carrying amount of non-integral investments accounted for using the equity method (Million €) Joint ventures Associated companies 2020 2019 2020 2019 Carrying amount according to the equity method as of the beginning of the year 12,401 – 722 284 Proportional income after taxes and other adjustments to income and expenses –890 –86 –35 –63 Proportional changes of other comprehensive income –1,255 –50 –2 –24 Total comprehensive income –2,145 –136 –37 –87 Changes in the scope of consolidation – – – – Additions – 14,078 – 590 Disposals – –1,541 –10 – Transfers –57 – – –65 Carrying amount according to the equity method as of the end of the year 10,199 12,401 675 722 Only the shareholding in Wintershall Dea GmbH is included in joint ventures. Proportional income after taxes and other adjustments to income and expenses also contain effects from the carryforward of fair value adjustments made at initial recognition of Wintershall Dea. The proportional changes of other comprehensive income primarily included currency effects on the assets of the Wintershall Dea Group. Disposals included to a capital decrease in Solenis UK International Ltd., London, United Kingdom, in the amount of €10 million in 2020. Transfers contained dividend payments of €57 million by Wintershall Dea GmbH in 2020. Transfers in 2019 included the reclassification of the proportional carrying amount attributable to the share of BASF Colors & Effects Switzerland AG in CIMO Compagnie industrielle de Monthey S.A., Monthey, Switzerland, to the assets of the disposal group for the pigments business. Financial information on the material non-integral investment accounted for using the equity method The following table contains financial information on the material non-integral shareholding accounted for using the equity method, the Wintershall Dea Group, including adjustments for fair value made at initial recognition and the resulting effects on earnings. (XLSX:) XLS Financial information on the Wintershall Dea Group, Kassel/Hamburg, Germany (100%) (Million €) December 31,2020 December 31,2019 Balance Sheet Noncurrent assets 27,881 31,920 of which goodwill from fair value adjustments 2,740 2,688 Current assets 2,459 2,589 of which marketable securities, cash and cash equivalents 821 814 Assets 30,340 34,509 Equity 14,029 17,058 Noncurrent liabilities 14,343 15,273 of which financial indebtedness 5,886 6,028 Current liabilities 1,968 2,178 of which financial indebtedness 471 576 Total equity and liabilities 30,340 34,509 Statement of income January 1–December 31,2020 May 1–December 31,2019 Sales revenue 3,891 3,272 Amortization/impairment and reversals of impairments –3,080 –1,544 Interest income 122 75 Interest expenses –39 –68 Income taxes –424 –286 Total comprehensive income –2,981 –187 10.3 Other shareholdings and financial assets (XLSX:) XLS Net income from other shareholdings (Million €) 2020 2019 Dividends and similar income 18 15 Income from the disposal of / write-up of shareholdings 136 17 Income from profit transfer agreements / tax allocation to shareholdings 3 1 Income from other shareholdings 157 33 Expenses from loss transfer agreements –63 –55 Write-downs on / losses from the sale of shareholdings –78 –23 Expenses from other shareholdings –141 –78 Net income from other shareholdings 16 –45 Net income from other shareholdings increased by €61 million in 2020. This resulted primarily from the measurement of shareholdings at fair value. (XLSX:) XLS Carrying amount of other financial assets (Million €) December 31,2020 December 31,2019 Other shareholdings 533 501 Long-term securities 49 135 Other financial assets 582 636 back next