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 related mainly to impairments of intangible assets relating to DSM Bio-based Products & Services and DSM Advanced Solar. For further information, see also Note 2 Alternative performance measures.

The breakdown of the carrying amount of goodwill at year-end 2021 is as follows.

The annual impairment tests of goodwill are performed in the fourth quarter. The recoverable amount of the Cash generating units (CGUs) is based on a value-in-use calculation. DSM Nutritional Products and DSM Food Specialties are the CGUs to which a significant amount of goodwill is allocated.

The cash flow projections are derived from DSM’s business plan as adopted by the Managing Board and updated periodically for example when the strategy is updated. 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, for DSM Food Specialties on the growth assumptions of the global food and beverage market. 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 a reasonable possible adverse change in key parameters had been assumed.

The market capitalization of DSM at 31 December 2021 amounted to €34,608 million (31 December 2020: €25,545 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 2021 included €121 million (2020: €136 million), relating mainly to strategic projects which are not being amortized yet. The recoverable amount of these projects was estimated based on the present value of the future cash flows expected to be derived from the projects (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 F&F Amyris and FCI in 2021. Intangible assets are amortized on a straight-line basis and subject to impairment trigger testing. There are no intangible assets with an indefinite useful life (same as in 2020).

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. In 2021, an amount of €21 million was added due to a change in the projected deemed costs and a corresponding amount was added to the liability to Fibrant. At the end of 2021, the drawing rights had a carrying amount of €162 million (2020: €156 million), a remaining useful life of 9 years, and an amount of €58 million was still payable to Fibrant for the acquisition of the drawing rights (2020: €39 million).