12. Intangible Assets

Intangible assets include not only acquired and internally generated intangible assets, but also goodwill arising from company acquisitions.

Goodwill represents the excess of the acquisition costs from company acquisitions over the fair value of the Group’s interests in the net assets of the acquired companies at the acquisition date. The goodwill recognized is subject to annual impairment testing and is measured at original cost less any accumulated impairment. Reversals are not permitted. Gains and losses on the disposal of a company include the carrying amount of the goodwill, which is attributed to the company being deconsolidated.

Acquired intangible assets are capitalized at cost. Internally generated intangible assets from which the Group expects to derive future benefit and which can be measured reliably are capitalized at production cost and amortized on a straight-line basis over their estimated useful lives. Production cost comprises all costs directly attributable to the production process, as well as an appropriate share of indirect production-related costs. Financing costs are capitalized if they are attributable to qualifying assets.

The straight-line pro rata method is the sole method used for depreciation and amortization, which is presented in the statement of profit or loss in the item “Depreciation, amortization and impairment of non-current intangible assets, property, plant and equipment and right-of-use assets from leases”. This method is based on the following standard useful lives:

No financing costs were capitalized for qualifying assets.

Intangible assets do not include any assets for which an operating lease exists.

Impairment

Overview

With the exception of inventories and deferred tax assets, all non-financial assets of the Group are tested at the end of the reporting period for indications of possible impairment pursuant to IAS 36. If any corresponding indications are identified, the expected recoverable amount is estimated and compared against the carrying amount.

If there are indications of impairment and if the recoverable amount is less than the amortized cost, impairment is recognized on the intangible assets. If it is not possible to estimate the recoverable amount for an individual asset, the assets are combined to form cash-generating units.

Furthermore, the recoverable amounts for goodwill, assets with an indefinite useful life and intangible assets not yet completed are estimated at the end of each reporting period regardless of whether there are any indications of impairment.

In accordance with IAS 36, impairment is recognized through profit or loss if the carrying amount of an asset or the related cash-generating unit exceeds its recoverable amount.

If a requirement to recognize a loss allowance is determined for a cash-generating unit, the goodwill of the cash-generating unit in question is first reduced. If a further adjustment of the loss allowance is required, it is uniformly distributed over the carrying amounts of the other assets of the cash-generating unit.

Impairment is recognized in the line item “Depreciation, amortization and impairment of non-current intangible assets, property, plant and equipment and right-of-use assets from leases”.

In addition to amortization, write-downs of intangible assets in the amount of EUR 1,195 thousand were recognized in the previous year. These related to an operational management tool, development of which has been discontinued.

Determination of the recoverable amount

The expected recoverable amount is the higher of an asset’s net realizable value less costs to sell and its value in use. The value in use is the present value of the future cash flows expected to be derived from the asset or cash-generating unit. Calculations are performed in euros on the basis of five-year planning, taking country-specific risks into account. Foreign currencies are translated using forward rates. The Group’s weighted average cost of capital of 7.29 percent (previous year: 7.96 percent) is applied as the discount rate, which is adjusted to the country-specific tax rate. The weighted average cost of capital is determined on the basis of the debt and equity interests, the risk-free base rate in consideration of inflation (2.59 percent, previous year: 3.09 percent), the market risk premium (7.0 percent, previous year: 7.0 percent), the sector-specific risk, the country-specific tax rate and borrowing costs.

The recoverable amounts of cash-generating units are determined based on value-in-use calculations. The tested goodwill and the assumptions underlying the calculations are presented in the following table:

For BLG AutoRail GmbH, Bremen, the recoverable amount based on the assumptions listed in the above table significantly exceeded the carrying amount of the cash-generating unit. Planning takes into account the utilization of railroad cars on the basis of historical data from previous years, as well as the conversion of ad hoc transport to portfolio transport. Even with a substantial reduction in the assumptions for revenue growth and other parameters or an increase in the discount rate by one percentage point, the recoverable amount would still exceed the carrying amount. The revenue expectations on which the planning in the AUTOMOBILE Division was based were derived from market forecasts for new car registrations, previous market shares and customer surveys.

In the reporting year, all cash-generating units without allocated goodwill were assessed for indications of impairment pursuant to IAS 36. This did not lead to any requirement for impairment losses in the Sports & Fashion CGU in the reporting year.

Recoverable income of EUR -10.6 million was determined on the basis of the value-in-use calculation for the Sports & Fashion CGU. The calculation was based on a discount rate of 7.29 percent.

When an impairment loss is allocated to individual assets of a cash-generating unit, care must be taken to ensure that the carrying amount of an asset is not reduced below the higher of its fair value less costs to sell and its value in use. As a result, an allocated impairment loss of EUR 4,971 thousand was recognized for the BLG Sports & Fashion CGU, which was attributable to one building and an associated conveyor system (EUR 4,450 thousand), write-downs without revenue (EUR 315 thousand), as well as write-downs of current assets (EUR 206 thousand). The impairment losses were allocable in full to the CONTRACT segment. These impairment losses were recognized in the statement of profit or loss under “Depreciation, amortization and impairment of non-current intangible assets, property, plant and equipment and right-of-use assets from leases” (EUR 4,450 thousand) and “Other operating expenses” (EUR 521 thousand).

Reversals of impairment losses

If the reasons for an impairment loss cease to apply, it must be reversed. The reversal is limited to the amortized cost that would have resulted without the impairment.

If the write-downs were distributed evenly across the assets of a cash-generating unit, the same procedure is applied for reversals.

Reversals of impairment on goodwill are not permitted.