16 Intangible Assets
Goodwill and Trademark Rights
Groups of Cash-Generating Units
Groups of Cash-Generating Units | ||||||
in € million | Value-add | Development | Group | |||
Goodwill as of Dec. 31, 2022 | 1,391.7 | 138.2 | 1,529.9 | |||
Impairment | – | -138.2 | -138.2 | |||
Goodwill as of June 30, 2023 | 1,391.7 | – | 1,391.7 | |||
Trademark rights as of Dec. 31, 2022 | – | 66.6 | 66.6 | |||
Impairment | – | -66.6 | -66.6 | |||
Trademark rights as of June 30, 2023 | – | – | – | |||
The carrying amount of goodwill came to € 1,391.7 million as of June 30, 2023. This means that goodwill has dropped by € 138.2 million compared with December 31, 2022.
The change is due to the impairment identified in the second quarter of 2023 as part of the (ad hoc) impairment test performed. The increased cost of capital in the Development business area and adjusted cash flow planning in the Development business area to reflect the current market situation were classified as triggering events within the meaning of IAS 36. The impairment test conducted as of June 30, 2023, resulted in the goodwill for the Development business area of € 138.2 million being written off in full.
In addition, trademark rights in the Development business area classified as having an indefinite useful life in the amount of € 66.6 million were also written off in full. This led to an impairment of € 204.8 million in the second quarter of 2023 for goodwill and trademark rights.
In accordance with IAS 36.19, first the value in use was calculated based on the Management Board-approved detailed plan with a planning period of five years. This was derived from the five-year plan at Group level approved by the Management Board and the Supervisory Board. The assumptions used to calculate the value in use match the assumptions used for the purposes of the impairment test at the end of 2022.
The main parameters for calculating the value in use are the sustainable rate of increase, the weighted average cost of capital (WACC) and the expected cash flows.
Parameters for WACC Calculation – Development Segment
Parameters for WACC Calculation for the Development Segment | |||||
Dec. 31, 2022 | June 30, 2023 | ||||
Risk-free interest rate in % | 2.00 | 2.50 | |||
Market risk premium in % | 7.00 | 7.00 | |||
Levered beta | 0.92 | 0.90 | |||
Country-specific premium in % | 0.12 | 0.19 | |||
WACC (before tax) in % | 8.13 | 9.92 | |||
Parameters for WACC Calculation – Value-Add Segment
Parameters for WACC Calculation for the Value-Add Segment | |||||
Dec. 31, 2022 | June 30, 2023 | ||||
Risk-free interest rate in % | 2.00 | 2.50 | |||
Market risk premium in % | 7.00 | 7.00 | |||
Levered beta | 0.76 | 0.77 | |||
WACC (before tax) in % | 6.10 | 7.35 | |||
The impairment loss was recognized in the consolidated income statement under depreciation and amortization.
The value in use for the Development business area amounts to € 3.0 billion.
An increase in the cost of capital would result in the following need for impairment:
Results of increase in the cost of capital
Value-Add | Development | ||||
Goodwill and trading rights as of June 30, 2023 in € million | 1,391.7 | ||||
Headroom in € million | 241.1 | ||||
Impairment starts with an increase of the WACC in percentage points | 0.44 | ||||
Full write-off in the event of an increase in the WACC in % | 10.24 | ||||
Goodwill and trading rights as of Dec. 31, 2022 in € million | 1,391.7 | 204.8 | |||
Headroom in € million | 830.6 | 62.0 | |||
Impairment starts with an increase of the WACC in percentage points | 1.19 | 0.14 | |||
Full write-off in the event of an increase in the WACC in % | 10.18 | 0.67 | |||
A 0.25 percentage point drop in the sustainable rate of increase in the Value-add segment does not result in any goodwill impairment.
Only a 0.75 percentage point drop in the sustainable rate of increase would result in a need for impairment of € 79.7 million in the Value-add segment.