8 Intangible assets

The amortization of intangible assets is included in Cost of sales, Marketing & Sales, Research & Development and General & Administrative expenses.

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.

The impairment losses in 2020 are €110 million. This includes a €67 million impairment of mainly intangible assets previously reported in the Innovation segment relating to DSM Bio-based Products & Services, owing to an expected subdued market outlook for biofuels which led to insufficient expected future cash flows. Consequently, the recoverable amount is measured at fair value minus costs of disposal, which was assessed to be of immaterial value to DSM. Furthermore, the impairment losses include the impairment of €38 million relating to DSM Advanced Solar on its solar assets previously reported in the Innovation segment, following the sale of the solar coating activities to Covestro AG. This led to insufficient expected future cash flows for the remaining solar assets, primarily consisting of goodwill and technology. Therefore, the recoverable amount for these assets is measured at fair value minus costs of disposal, which is assessed to be of immaterial value to DSM.

The breakdown of the carrying amount of goodwill at year-end 2020 is as follows.

The annual impairment tests of goodwill are performed in the fourth quarter. The recoverable amount of the Cash generating units (CGUs), except for the previously mentioned CGUs DSM Bio-based Products & Services and DSM Advanced Solar, is based on a value-in-use calculation. DSM Nutritional Products is the CGU to which a significant amount of (provisional) goodwill is allocated. In 2020 goodwill from DSM Hydrocolloids (DHC) was re-allocated to DSM Food Specialties due to further integration of the organization. The comparative figures have been adjusted accordingly.

The cash flow projections are derived from DSM’s business plan (Corporate Strategy Dialogue) as adopted by the Managing Board and updated on a yearly basis. Mature businesses come to a terminal value after five years. The terminal value growth rate is determined with the assumption of limited inflationary growth. For emerging businesses, an explicit forecast period of ten years is used with the same assumption for growth in the terminal value. The key assumptions in the cash flow projections relate to the market growth for the CGUs and the related revenue projections, EBITDA developments, and the rates used for discounting cash flows.

For DSM Nutritional Products the growth assumptions are based on the growth of the global food and feed markets. A sensitivity test was performed on the impairment tests of the CGUs and showed that the conclusions of these tests would not have been different if reasonable possible adverse change in key parameters had been assumed.

The market capitalization of DSM at 31 December 2020 amounted to €25,545 million (31 December 2019: €21,063 million) and was clearly above the carrying amount of net assets, thus providing an additional indication that goodwill was not impaired.

Development costs

The carrying amount of development costs at 31 December 2020 included €136 million (2019: €125 million) mainly relating to strategic projects which are not being amortized yet. The recoverable amount of these CGUs was estimated based on the present value of the future cash flows expected to be derived from the CGUs (value-in-use).

Other intangible assets include (partially provisional) customer relationships, which were obtained during the acquisition of Erber Group and Glycom in 2020, as well as CSK in 2019 and Fortitech in 2012. Technology-based intangibles were mainly obtained via the acquisition of Erber Group and Glycom in 2020 and CSK in 2019. Intangible assets are included in the annual goodwill impairment test as discussed in this section; they are amortized on a straight-line basis. There are no intangible assets with an indefinite useful life (same as in 2019). The acquisition-related numbers 2019 have been adjusted for comparison reasons.

Other intangible assets also include drawing rights contracts with Fibrant. Fibrant will continue to supply at least 80% of DSM Engineering Materials’ caprolactam needs in Europe and North America for 15 years (2015–2030) via a drawing rights contract, effectively maintaining DSM Engineering Materials’ backward integration. Initially the fair value of this contract has been recognized as an intangible asset by DSM Engineering Materials; for subsequent measurement, the initial fair value is the deemed cost of the asset, which is subject to straight-line amortization. At the end of 2020, it had a carrying amount of €156 million (2019: €167 million), a remaining useful life of 10 years, and an amount of €39 million was still payable to Fibrant for the acquisition of the drawing rights (2019: €44 million).