Note 11: Intangible assets

Brands as included in the table left comprise of brands with indefinite useful lives and brands with finite useful lives. 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, software and development cost. Both at year-end 2022 and 2021, there were no material purchase commitments for individual intangible assets. No intangible assets were registered as security for bank loans.

Acquisitions through business combinations

The additions from acquisitions in 2022 primarily relate to the acquisition of Grupo Orbis S.A., Colombia, and of the wheel liquid coatings business of Lankwitzer Lackfabrik GmbH, Germany. In 2021, additions from acquisitions primarily related to the acquisition of Titan Paints in Spain. Refer to Note 2 for disclosures on acquisitions.

Changes in exchange rates

Changes in exchange rates includes a €15 million positive adjustment from the IAS 29 hyperinflation impact for Türkiye and Argentina.

Annual impairment testing

Goodwill and other intangibles with indefinite useful lives are tested for impairment per business unit (one level below segment level) annually or whenever an impairment trigger exists, applying the value-in-use method.

The paints business of recently acquired Grupo Orbis has been allocated to business unit Decorative Paints Latin America. The Grupo Orbis coatings businesses ultimately will be incorporated into the respective Performance Coatings business units in 2023. For the interim period, in 2022, these businesses are reported in business unit Performance Coatings Other.

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 mainly related to high growth/emerging economies, geo expansion opportunities, introduction of new product ranges and opportunities from market consolidation. In 2022, the above exception was applied for Decorative Paints Asia, Decorative Paints Latin America and Performance Coatings Other (Grupo Orbis), 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.

Macro economic developments and other relevant variables (e.g. inflation, the situation with respect to COVID-19, geopolitical uncertainties, climate risks – refer to Note 1 for a description of the impact from climate change on the financial statements) are closely monitored to ensure that the impact on the estimated future cash flows is reflected in the models which are used to assess the value of AkzoNobel’s asset base.

The key assumptions used in the projections for annual impairment testing are:

• Revenue growth per year: based on actual experience, analysis of markets and GDP growth, and expected market share developments
• Margin development per year: based on actual experience and management’s long-term projections
• Weighted average cost of capital per year: the pre-tax discount rate determined per business unit, reflecting current market assessments of the time value of money and the risks specifically associated with the business units

For all business units, a terminal value was calculated based on long-term inflation expectations of 2% (2021: 1%). 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 10.8% to 15.9% (2021: 7.8% to 12.5%), with a weighted average of 11.7% (2021: 8.4%).

Sensitivity tests were performed to assess the impact of changes in the key assumptions revenue growth (50% lower), margin development (1 percentage point lower) and the weighted average cost of capital (1 percentage point higher). These assessments show that these changes in key assumptions would not cause carrying amounts to exceed recoverable amounts for any of the business units, except for the Latin America businesses where the recently acquired Grupo Orbis business is included.

Given the current uncertainties in the macro-economic environment and high cost inflation, additional sensitivity tests have been performed in order to assess the impact of more severe adverse changes in the key assumptions. The conclusions from these tests are the same as above.

In 2022 and 2021, no impairment charges were recognized in relation to the annual impairment test.

Specific asset impairments

Periodical evaluations are performed in order to ensure timely detection of triggers that might indicate impairment of assets. Whenever such triggers are noted, the related assets are assessed for impairment as appropriate.

In 2022 and 2021, no significant impairment charges were recorded in relation to specific assets.