Note 7: Intangible assets

In € millions

 

Goodwill

 

Brands

 

Customer lists

 

Other intangibles

 

Total

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2013

 

 

 

 

 

 

 

 

 

 

Cost of acquisition

 

1,513

 

2,226

 

1,030

 

394

 

5,163

Cost of internally developed intangibles

 

 

 

 

217

 

217

Accumulated amortization/impairment

 

(161)

 

(108)

 

(435)

 

(222)

 

(926)

Carrying value

 

1,352

 

2,118

 

595

 

389

 

4,454

 

 

 

 

 

 

 

 

 

 

 

Movements in 2013

 

 

 

 

 

 

 

 

 

 

Acquisitions through business combinations

 

7

 

 

9

 

 

16

Investments – including internally developed intangibles

 

1

 

 

 

29

 

30

Transfer to assets held for sale

 

 

 

(76)

 

(35)

 

(111)

Divestments

 

 

 

 

(2)

 

(2)

Disposals

 

 

 

 

(5)

 

(5)

Impairments

 

(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

 

 

 

 

 

 

 

 

 

 

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 at year-end 2013

 

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

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 2014 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

 

2013

 

2014

 

2013

 

2014

 

2013

 

2014

 

2013

 

2014

Decorative Paints

 

22

 

37

 

1,785

 

1,908

 

319

 

305

 

2,126

 

2,250

Performance Coatings

 

663

 

701

 

 

 

302

 

292

 

965

 

993

Specialty Chemicals

 

494

 

508

 

 

 

321

 

391

 

815

 

899

Total

 

1,179

 

1,246

 

1,785

 

1,908

 

942

 

988

 

3,906

 

4,142

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

 

2015-2019

 

2020-2024

Decorative Paints

 

5.7

 

4.1

Performance Coatings

 

3.8

 

2.5

Specialty Chemicals

 

3.2

 

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 7.4 percent to 11.3 percent, with a weighted average of 8.7 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.

In 2013, as a result of classifying a business as held for sale in Specialty Chemicals, an impairment charge of €139 million was recognized.