Note 9: Intangible assets

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Intangible assets

In € millions

Goodwill

Brands

Customer lists

Other intangibles

Total

 

 

 

 

 

 

Balance at January 1, 2016

 

 

 

 

 

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

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/impairment

(99)

(165)

(748)

(341)

(1,353)

Carrying value at December 31, 2016

1,553

2,125

456

279

4,413

 

 

 

 

 

 

Movements in 2017

 

 

 

 

 

Acquisitions through business combinations

(3)

2

89

10

98

Investments – including internally developed intangibles

–

–

–

22

22

Divestments

–

–

–

(4)

(4)

Amortization

–

(12)

(67)

(42)

(121)

Classified as held for sale

(517)

–

(141)

(129)

(787)

Changes in exchange rates

(88)

(90)

(22)

(12)

(212)

Total movements

(608)

(100)

(141)

(155)

(1,004)

 

 

 

 

 

 

Balance at December 31, 2017

 

 

 

 

 

Cost of acquisition

991

2,189

754

192

4,126

Cost of internally developed intangibles

–

–

–

160

160

Accumulated amortization/impairment

(46)

(164)

(439)

(228)

(877)

Carrying value at December 31, 2017

945

2,025

315

124

3,409

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 2017 and 2016, there were no purchase commitments for individual intangible assets. No intangible assets were registered as security for bank loans.

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 different 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 2017, the above exception was applied for Decorative Paints Asia and Decorative Paints Latin America, for which the revenue growth and -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

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 8.6 percent to 13.3 percent, with a weighted average of 9.7 percent.

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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

2016

2017

2016

2017

2016

2017

2016

2017

*

The goodwill and other intangible assets for Specialty Chemicals were classified as held for sale at year-end 2017 and are therefore not included in the goodwill and other intangibles at year-end 2017.

Decorative Paints

40

40

1,928

1,845

228

194

2,196

2,079

Performance Coatings

954

905

–

–

372

425

1,326

1,330

Specialty Chemicals*

559

–

–

–

332

–

891

–

Total

1,553

945

1,928

1,845

932

619

4,413

3,409

Sensitivity tests were performed for growth assumptions (a 50 percent reduction of the growth rate), EBITDA-margin development assumptions (a one percentage point decrease) and for the weighted average cost of capital (a one percentage point increase). All sensitivity tests individually confirm sufficient headroom in all businesses.

No impairment charges were recognized in relation to the annual impairment test, both in 2016 and 2017.

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Average revenue growth rates

In % per year

2017–2022

Decorative Paints

4.2%

Performance Coatings

3.2%
EBITDA

Operating income before depreciation, amortization and incidental.

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