DCSIMG
8 Intangible assets - Annual Report 2015 - DSM

8 Intangible assets

Table 1

 
Goodwill
Licenses
and patents
Under
construction
Development
projects
Other
Total
             
Balance at 1 January 2014
           
Cost
1,660
156
108
58
1,347
3,329
Amortization and impairment losses
-
77
-
22
540
639
             
Carrying amount
1,660
79
108
36
807
2,690
             
Changes in carrying amount:
           
- Capital expenditure
-
10
70
15
2
97
- Put into operation
-
1
(79)
4
74
-
- Acquisitions
7
23
-
-
4
34
- Amortization
-
(10)
-
(3)
(126)
(139)
- Impairment losses
(1)
-
-
-
(12)
(13)
- Exchange differences
122
5
2
1
63
193
- Reclassification to held for sale
-
-
1
-
(1)
-
- Other reclassifications
-
3
-
1
1
5
             
 
128
32
(6)
18
5
177
Balance at 31 December 2014
           
Cost
1,788
204
102
75
1,525
3,694
Amortization and impairment losses
-
93
-
21
713
827
             
Carrying amount
1,788
111
102
54
812
2,867
             
Changes in carrying amount:
           
- Capital expenditure
-
-
31
47
7
85
- Put into operation
-
7
(35)
-
28
-
- Acquisitions
29
4
-
-
12
45
- Disposals
-
(2)
(2)
-
(11)
(15)
- Deconsolidation
-
-
-
-
334
334
- Amortization
-
(11)
-
(3)
(140)
(154)
- Impairment losses
(18)
(2)
-
(13)
(23)
(56)
- Exchange differences
67
1
4
1
44
117
- Other reclassifications
-
-
4
-
1
5
             
 
78
(3)
2
32
252
361
Balance at 31 December 2015
           
Cost
1,883
199
104
122
1,880
4,188
Amortization and impairment losses
17
91
-
36
816
960
             
Carrying amount
1,866
108
104
86
1,064
3,228

Other intangible assets principally comprises acquisition-related intangibles that have been included in the annual goodwill impairment test discussed later in this section. These assets are amortized on a straight-line basis.

In 2015, an impairment on Intangible assets of €56 million was recognized. This mainly related to an impairment of €16 million at DSM Resins & Functional Materials against goodwill relating to DSM-AGI (see note 6 Exceptional items). Furthermore an impairment of development costs in DSM Nutritional Products of €13 million has been included as certain new production techniques that had been developed were not taken into operation. Also an impairment of €14 million was included relating to software, as a consequence of outsourcing the related activity.

Deconsolidation of €334 million in 2015 relates to the impact of the disposal of Bulk Chemicals on the DSM Engineering Plastics business. The new partnership, ChemicaInvest, will continue to supply at least 80% of DSM Engineering Plastics caprolactam needs in Europe and North America for the coming 15 years via a drawing rights contract, effectively maintaining DSM Engineering Plastics' backward integration. The fair value of this contract has been recognized as an intangible asset by DSM Engineering Plastics. At the end of 2015 an amount of €160 million was recognized as a liability towards ChemicaInvest for the acquisition of the drawing rights.

Over the past few years, DSM has acquired several entities in business combinations that have been accounted for by the acquisition method, resulting in recognition of goodwill and other intangible assets. The amounts assigned to the acquired assets and liabilities are based on assumptions and estimates about their fair values. In making these estimates, management consults independent, qualified appraisers if appropriate. A change in assumptions and estimates could change the values allocated to certain assets and their estimated useful lives, which could affect the amount or timing of charges to the income statement, such as amortization of intangible assets.

The breakdown of the carrying amount of goodwill at year-end 2015 is as follows:

Table 2: Goodwill

Goodwill
Acquisition
2015
2014
 
Cash generating unit
Functional currency
Year of acquisition
             
Martek
425
382
 
DSM Nutritional Products
USD
2011
NeoResins
358
358
 
DSM Resins & Functional Materials
EUR
2005
Fortitech
318
286
 
DSM Nutritional Products
USD
2012
Ocean Nutrition Canada
196
210
 
DSM Nutritional Products
CAD
2012
Kensey Nash
148
133
 
DSM Biomedical
USD
2012
Tortuga
94
125
 
DSM Nutritional Products
BRL
2013
The Polymer Technology Group
80
72
 
DSM Biomedical
USD
2008
Pentapharm
36
32
 
DSM Nutritional Products
CHF
2007
Cargill Culture and enzymes business
30
29
 
DSM Food Specialties
EUR/USD
2012
Shandong ICD
27
26
 
DSM Dyneema
CNY
2011
Unitech
17
17
 
DSM Nutritional Products
NZD
2013
Cubic Tech
15
0
 
DSM Dyneema
USD
2015
Aland
14
0
 
DSM Nutritional Products
CNY
2015
Syntech Far East
12
11
 
DSM Resins & Functional Materials
HKD
2005
Zhejiang Zhongken Biotechnology
11
11
 
DSM Food Specialties
CNY
2010
Verenium
10
9
 
DSM Food Specialties
USD
2012
C5 Yeast Company
9
9
 
DSM Bio-based Products & Services
EUR
2011
Novamid
9
8
 
DSM Engineering Plastics
JPY
2010
Crina
9
8
 
DSM Nutritional Products
CHF
2006
DSM Japan Engineering Plastics
6
6
 
DSM Engineering Plastics
EUR
2003
DSM Valley Research
6
5
 
DSM Food Specialties
USD
2008
AGI Corporation
0
16
 
DSM Resins & Functional Materials
TWD
2011
Other acquisitions
36
35
       
Total
1,866
1,788
       

The annual impairment tests of goodwill are performed in the fourth quarter. The recoverable amount of the cash generating units (CGUs) concerned is based on a value-in-use calculation. The cash flow projections for the first five years are derived from DSM’s business plan (Corporate Strategy Dialogue) as adopted by the Managing Board. Cash flow projections beyond the five-year planning period are extrapolated taking into account the growth rates that have been determined to apply for the specific CGU in the Annual Strategic Review. The key assumptions in the cash flow projections relate to the market growth for the CGUs and the related revenue projections. DSM Nutritional Products, DSM Resins & Functional Materials and DSM Biomedical are three CGUs to which significant amounts of goodwill are allocated. The growth assumptions for these CGUs are based on the growth of the global food and feed markets, the demand for advanced coating resins that is influenced by growth in the building and construction markets and the growth of the market for medical devices. Growth rates generally are between 3% and 5%. For DSM Nutritional Products organic sales growth is expected to be between 3 and 5% and the pre-tax discount rate for impairment testing is 8.5%. For DSM Resins & Functional Materials the expected growth also is between 3 and 5% and the pre-tax discount rate is 10.5%. For DSM Biomedical growth exceeding 10% is expected with a pre-tax discount rate of 10.5%. The terminal value for the period after 10 years is determined with the assumption of limited inflationary growth in all cases.

A stress test was performed on the impairment tests of the CGUs. This showed that the conclusions of these tests would not have been different if reasonably possible adverse changes in key parameters had been assumed. The value-in-use of CGUs with significant amounts of goodwill clearly exceeded their carrying amount, with the exception of DSM Biomedical where the headroom was limited (similar to 2014). The market capitalization of DSM at 31 December 2015 amounted to €8,396 million (31 December 2014: €9,187 million) and was clearly above the carrying amount of net assets, providing an additional indication that goodwill was not impaired.

The other intangible assets are listed in the following table:

Table 3: Other intangible assets

Other intangible assets
       
2015
2014
 
Cost
Amortization
Carrying
amount
Of which
acquisition-
related
Of which
acquisition-
related
           
Application software
202
(137)
65
12
11
Marketing-related
79
(18)
61
60
16
Customer-related
572
(208)
364
296
287
Technology-based
639
(422)
217
184
200
Drawing rights
334
(9)
325
-
-
Other
54
(22)
32
15
52
           
Total
1,880
(816)
1,064
567
566
           
Total 2014
1,525
(713)
812
566