Note 7: Intangible assets

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In € millions

  

Goodwill

  

Brands

  

Customer lists

  

Other intangibles

  

Total

 

  

 

  

 

  

 

  

 

  

 

Balance at January 1, 2014

  

 

  

 

  

 

  

 

  

 

Cost of acquisition

  

1,264

  

2,113

  

854

  

319

  

4,550

Cost of internally developed intangibles

  

–

  

–

  

–

  

237

  

237

Accumulated amortization/impairment

  

(85)

  

(118)

  

(425)

  

(253)

  

(881)

Carrying value

  

1,179

  

1,995

  

429

  

303

  

3,906

 

  

 

  

 

  

 

  

 

  

 

Movements in 2014

  

 

  

 

  

 

  

 

  

 

Acquisitions through business combinations

  

5

  

–

  

3

  

2

  

10

Investments – including internally developed intangibles

  

–

  

–

  

–

  

24

  

24

Transfer from/(to) assets held for sale

  

(16)

  

–

  

71

  

35

  

90

Amortization

  

–

  

(11)

  

(69)

  

(61)

  

(141)

Impairments

  

–

  

–

  

–

  

(2)

  

(2)

Changes in exchange rates

  

78

  

137

  

29

  

11

  

255

Total movements

  

67

  

126

  

34

  

9

  

236

 

  

 

  

 

  

 

  

 

  

 

Balance at December 31, 2014

  

 

  

 

  

 

  

 

  

 

Cost of acquisition

  

1,340

  

2,267

  

1,027

  

401

  

5,035

Cost of internally developed intangibles

  

–

  

–

  

–

  

255

  

255

Accumulated amortization/impairment

  

(94)

  

(146)

  

(564)

  

(344)

  

(1,148)

Carrying value at year-end 2014

  

1,246

  

2,121

  

463

  

312

  

4,142

 

  

 

  

 

  

 

  

 

  

 

Movements in 2015

  

 

  

 

  

 

  

 

  

 

Acquisitions through business combinations

  

3

  

–

  

–

  

–

  

3

Investments – including internally developed intangibles

  

–

  

–

  

–

  

37

  

37

Divestment

  

(2)

  

–

  

(1)

  

(8)

  

(11)

Amortization

  

–

  

(12)

  

(70)

  

(57)

  

(139)

Impairments

  

–

  

–

  

–

  

(1)

  

(1)

Changes in exchange rates

  

77

  

3

  

29

  

16

  

125

Total movements

  

78

  

(9)

  

(42)

  

(13)

  

14

 

  

 

  

 

  

 

  

 

  

 

Balance at December 31, 2015

  

 

  

 

  

 

  

 

  

 

Cost of acquisition

  

1,423

  

2,260

  

1,071

  

409

  

5,163

Cost of internally developed intangibles

  

–

  

–

  

–

  

246

  

246

Accumulated amortization/impairment

  

(99)

  

(148)

  

(650)

  

(356)

  

(1,253)

Carrying value at year-end 2015

  

1,324

  

2,112

  

421

  

299

  

4,156

Dulux is the major brand with an indefinite useful life, due to its global presence, high recognition and strategic nature. Other intangibles include licenses, know-how, intellectual property rights, emission rights and development cost. Both at year-end 2015 and 2014, there were no purchase commitments for individual intangible assets. No intangible assets were registered as security for bank loans.

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Goodwill and other intangibles per segment

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

  

 

 

  

Goodwill

  

Brands with indefinite
useful lives

  

Other intangibles with finite useful lives

  

Total intangibles

In € millions

  

2014

  

2015

  

2014

  

2015

  

2014

  

2015

  

2014

  

2015

Decorative Paints

  

37

  

36

  

1,908

  

1,907

  

305

  

265

  

2,250

  

2,208

Performance Coatings

  

701

  

731

  

–

  

–

  

292

  

278

  

993

  

1,009

Specialty Chemicals

  

508

  

557

  

–

  

–

  

391

  

382

  

899

  

939

Total

  

1,246

  

1,324

  

1,908

  

1,907

  

988

  

925

  

4,142

  

4,156

Impairment

Goodwill and other intangibles with indefinite useful lives are tested for impairment per business unit (one level below segment level) in the fourth quarter or whenever an impairment trigger exists. The impairment test is based on cash flow projections of the five-year plan. The key assumptions used in the projections are:

  • Revenue growth: based on actual experience, analysis of market growth and the expected market share development
  • Margin development: based on actual experience and management’s long-term projections

Average revenue growth rates per forecast period

 

  

 

  

 

In % per year

  

2016-2020

  

2021-2025

Decorative Paints

  

5.1%

  

3.4%

Performance Coatings

  

3.0%

  

2.5%

Specialty Chemicals

  

1.3%

  

2.0%

Revenue growth and margin development projections are extrapolated beyond this five-year explicit forecast period for another five years, for which generally reduced growth rates are applied.

For virtually all business units, a terminal value was calculated using a long-term average market growth rate that did not exceed 2 percent. The estimated pre-tax cash flows are discounted to their present value using a pre-tax weighted average cost of capital. The discount rates are determined for each business unit and range from 7.7 percent to 11.9 percent, with a weighted average of 8.6 percent.

A sensitivity test for growth assumptions – a 50 percent reduction of the growth rate – as well as the pre-tax weighted average cost of capital – a one percentage point increase – confirms sufficient headroom in all businesses. As a result, no impairment charge was recognized in relation to the annual impairment test this year.

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