Note 7: Intangible assets

In € millions

 

Goodwill

 

Brands

 

Customer lists

 

Other intangibles

 

Total

1

Including Decorative Paints North America.

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2012

 

 

 

 

 

 

 

 

 

 

Acquisition cost

 

4,890

 

2,514

 

1,256

 

431

 

9,091

Cost of internally developed intangibles

 

 

 

 

141

 

141

Accumulated amortization/impairment

 

(1,025)

 

(160)

 

(463)

 

(192)

 

(1,840)

Carrying value

 

3,865

 

2,354

 

793

 

380

 

7,392

 

 

 

 

 

 

 

 

 

 

 

Movements in 2012

 

 

 

 

 

 

 

 

 

 

Acquisitions through business combinations

 

58

 

1

 

16

 

7

 

82

Other investments – including internally developed intangibles

 

(6)

 

 

 

79

 

73

Transfer to assets held for sale

 

(96)

 

(180)

 

(76)

 

(25)

 

(377)

Divestments

 

(40)

 

 

(2)

 

(1)

 

(43)

Impairment

 

(2,450)

 

(27)

 

(6)

 

 

(2,483)

Amortization1

 

 

(19)

 

(112)

 

(57)

 

(188)

Changes in exchange rates

 

21

 

(11)

 

(18)

 

6

 

(2)

Total movements

 

(2,513)

 

(236)

 

(198)

 

9

 

(2,938)

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2012

 

 

 

 

 

 

 

 

 

 

Acquisition cost

 

4,102

 

2,226

 

1,030

 

445

 

7,803

Cost of internally developed intangibles

 

 

 

 

166

 

166

Accumulated amortization/impairment

 

(2,750)

 

(108)

 

(435)

 

(221)

 

(3,514)

Carrying value at year-end 2012

 

1,352

 

2,118

 

595

 

389

 

4,454

 

 

 

 

 

 

 

 

 

 

 

Movements in 2013

 

 

 

 

 

 

 

 

 

 

Acquisitions through business combinations

 

7

 

 

9

 

 

16

Other investments – including internally developed intangibles

 

1

 

 

 

29

 

30

Transfer to assets held for sale

 

 

 

(76)

 

(35)

 

(111)

Divestments

 

 

 

 

(2)

 

(2)

Disposals

 

 

 

 

(5)

 

(5)

Impairment

 

(139)

 

(5)

 

(3)

 

(8)

 

(155)

Amortization

 

 

(13)

 

(75)

 

(56)

 

(144)

Changes in exchange rates

 

(42)

 

(105)

 

(21)

 

(9)

 

(177)

Total movements

 

(173)

 

(123)

 

(166)

 

(86)

 

(548)

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2013

 

 

 

 

 

 

 

 

 

 

Acquisition cost

 

3,966

 

2,113

 

854

 

360

 

7,293

Cost of internally developed intangibles

 

 

 

 

196

 

196

Accumulated amortization/impairment

 

(2,787)

 

(118)

 

(425)

 

(253)

 

(3,583)

Carrying value at year-end 2013

 

1,179

 

1,995

 

429

 

303

 

3,906

Other intangibles include licenses, know-how, intellectual property rights and development cost. Both at year-end 2012 and 2013, there were no purchase commitments for individual intangible assets. No intangible assets were registered as security for bank loans.

Goodwill and other intangibles per segment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

Brands with indefinite
useful lives

 

Other intangibles with finite useful lives

 

Total intangibles

In € millions

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

 

2012

 

2013

Decorative Paints

 

17

 

22

 

1,881

 

1,785

 

398

 

319

 

2,296

 

2,126

Performance Coatings

 

686

 

663

 

 

 

330

 

302

 

1,016

 

965

Specialty Chemicals

 

649

 

494

 

 

 

493

 

321

 

1,142

 

815

Total

 

1,352

 

1,179

 

1,881

 

1,785

 

1,221

 

942

 

4,454

 

3,906

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

 

2014-2018

 

2019-2023

Decorative Paints

 

6.2

 

4.2

Performance Coatings

 

4.8

 

3.2

Specialty Chemicals

 

3.5

 

2.3

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

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 13.5 percent, with a weighted average of 9.2 percent.

A sensitivity test on growth assumptions as well as the pre-tax weighted average cost of capital confirms comfortable headroom in all businesses. As a result, no impairment charge was recognized in relation to the annual impairment test this year. As a result of classifying a business as held for sale in Specialty Chemicals, an impairment charge of €139 million was recognized in 2013.

In 2012, a non-cash impairment charge against our Decorative Paints assets was recognized. In Europe, we recognized an impairment charge of €1,948 million and in South America an amount of €158 million. The total of €2,106 million is disclosed on a separate line in the consolidated statement of income. The impairment of Decorative Paints North America of €372 million is included in results from discontinued operations.