Note 8: Intangible assets
in € millions |
Goodwill |
Brands |
Customer lists |
Other intangibles |
Total |
|
|
|
|
|
|
Balance at January 1, 2015 |
|
|
|
|
|
Cost of acquisition |
1,340 |
2,267 |
1,027 |
401 |
5,035 |
Cost of internally developed intangibles |
– |
– |
– |
255 |
255 |
Accumulated amortization/impairments |
(94) |
(146) |
(564) |
(344) |
(1,148) |
Carrying value |
1,246 |
2,121 |
463 |
312 |
4,142 |
|
|
|
|
|
|
Movements in 2015 |
|
|
|
|
|
Acquisitions through business combinations |
3 |
– |
– |
– |
3 |
Investments – including internally developed intangibles |
– |
– |
– |
37 |
37 |
Divestments |
(2) |
– |
|
(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/impairments |
(99) |
(148) |
(650) |
(356) |
(1,253) |
Carrying value at December 31, 2015 |
1,324 |
2,112 |
421 |
299 |
4,156 |
|
|
|
|
|
|
Movements in 2016 |
|
|
|
|
|
Acquisitions through business combinations |
223 |
4 |
137 |
24 |
388 |
Investments – including internally developed intangibles |
– |
– |
– |
17 |
17 |
Divestments |
– |
– |
(1) |
(5) |
(6) |
Amortization |
– |
(12) |
(64) |
(48) |
(124) |
Impairments |
– |
(3) |
(37) |
(4) |
(44) |
Changes in exchange rates |
6 |
24 |
– |
(4) |
26 |
Total movements |
229 |
13 |
35 |
(20) |
257 |
|
|
|
|
|
|
Balance at December 31, 2016 |
|
|
|
|
|
Cost of acquisition |
1,652 |
2,290 |
1,204 |
399 |
5,545 |
Cost of internally developed intangibles |
– |
– |
– |
221 |
221 |
Accumulated amortization/impairments |
(99) |
(165) |
(748) |
(341) |
(1,353) |
Carrying value at December 31, 2016 |
1,553 |
2,125 |
456 |
279 |
4,413 |
Brands with indefinite useful lives are almost fully related to Dulux, which is the major brand, 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 2016 and 2015, there were no purchase commitments for individual intangible assets. No intangible assets were registered as security for bank loans.
|
Goodwill |
Brands with indefinite useful lives |
Other intangibles with finite useful lives |
Total intangibles |
||||
in € millions |
2015 |
2016 |
2015 |
2016 |
2015 |
2016 |
2015 |
2016 |
Decorative Paints |
36 |
40 |
1,907 |
1,928 |
265 |
228 |
2,208 |
2,196 |
Performance Coatings |
731 |
954 |
– |
– |
278 |
372 |
1,009 |
1,326 |
Specialty Chemicals |
557 |
559 |
– |
– |
382 |
332 |
939 |
891 |
Total |
1,324 |
1,553 |
1,907 |
1,928 |
925 |
932 |
4,156 |
4,413 |
Impairment
In 2016, we recorded incidental impairment charges of €43 million for brands, customer lists and other intangibles to align with the value in use as a result of a revised business outlook for certain activities in Performance Coatings. The discount rates used for the fair value calculations range from 10.3 percent to 13.8 percent.
Impairment testing
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 in principle based on cash flow projections of the five-year plan. Elements considered to determine if a diffferent approach would be more appropriate are, among others, high growth/emerging economies, geo expansion opportunities, introduction of new product ranges and opportunities from market consolidation. In 2016, the above exception was applied for Decorative Paints Asia and Decorative Paints Latin America, for which the revenue growth and EBITDA-margin development projections were extrapolated beyond the five-year explicit forecast period for another five years, applying reduced average growth rates.
The key assumptions used in the projections are:
- Revenue growth: based on actual experience, analysis of market growth and the expected market share development
- EBITDA-margin development: based on actual experience and management’s long-term projections
in % per year |
2017–2021 |
Decorative Paints |
3.4% |
Performance Coatings |
2.6% |
Specialty Chemicals |
2.1% |
For all business units, a terminal value was calculated based on the long-term inflation expectations of 1.2 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 8.3 percent to 11.4 percent, with a weighted average of 9.3 percent.
A sensitivity test for growth assumptions (a 50 percent reduction of the growth rate), EBITDA-margin development assumptions (a one percentage point decrease) as well as for the weighted average cost of capital (a one percentage point increase) confirms sufficient headroom in all businesses.
No impairment charges were recognized in relation to the annual impairment test, both in 2015 and 2016.
Operating income before depreciation, amortization and incidental.