Mobiles Menu Mobiles Menu Close

26 Intangible Assets

Intangible Assets

in € million

Concessions, industrial property rights, license and similar rights

Self-developed software

Customer relationships and non- competition clause

Trademark rights

Goodwill

Total

Cost

As of Jan. 1, 2023

138.1

10.9

54.4

152.6

9,304.3

9,660.3

Additions

10.4

4.2

14.6

Disposals

-5.6

-5.6

Changes in value from currency translation

3.3

3.3

Transfers

-1.9

-0.8

-2.7

Transfer into discontinued operations

-5.2

-42.4

-86.0

-133.6

As of Dec. 31, 2023

135.8

15.1

11.2

66.6

9,307.6

9,536.3

Accumulated amortization

As of Jan. 1, 2023

107.6

7.7

25.1

86.0

7,774.4

8,000.8

Amortization in reporting year

13.5

2.4

0.1

66.6

82.6

Amortization in reporting year for discontinued operations

0.3

6.5

6.8

Impairment

138.2

138.2

Disposals

-5.4

-5.4

Changes in value from currency translation

3.3

3.3

Transfers

-2.7

-2.7

Transfer into discontinued operations

-4.2

-20.8

-86.0

-111.0

As of Dec. 31, 2023

109.1

10.1

10.9

66.6

7,915.9

8,112.6

Carrying amounts

As of Dec. 31, 2023

26.7

5.0

0.3

1,391.7

1,423.7

Cost

As of Jan. 1, 2022

143.5

8.1

57.5

152.6

9,372.1

9,733.8

Additions

12.9

2.9

15.8

Disposals

-20.0

-3.1

-23.1

Changes in value from currency translation

-0.1

-67.8

-67.9

Transfers

1.7

1.7

As of Dec. 31, 2022

138.1

10.9

54.4

152.6

9,304.3

9,660.3

Accumulated amortization

As of Jan. 1, 2022

99.0

6.0

18.0

6,887.9

7,010.9

Amortization in reporting year

20.7

1.7

7.8

86.0

116.2

Impairment

954.3

954.3

Disposals

-13.0

-0.7

-13.7

Changes in value from currency translation

-67.8

-67.8

Transfers

0.9

0.9

As of Dec. 31, 2022

107.6

7.7

25.1

86.0

7,774.4

8,000.8

Carrying amounts

As of Dec. 31, 2022

30.5

3.2

29.3

66.6

1,529.9

1,659.5

Accounting Policies

Acquired other intangible assets are stated at amortized cost. Internally generated other intangible assets are stated at amortized cost provided that the requirements of IAS 38 for the capitalization of internally generated intangible assets are met. Acquired trademark rights that are identified have an indefinite useful life and are subject to regular impairment testing. All of Vonovia’s miscellaneous other intangible assets have definite useful lives and are amortized on a straight-line basis over their estimated useful lives. Software and licenses are amortized on the basis of a useful life of three years.

In accordance with IAS 36 “Impairment of Assets,” other intangible assets are tested for impairment whenever there is an indication of an impairment. Impairment testing is performed at least once a year. An impairment loss is recognized when an asset’s recoverable amount is less than its carrying amount. If the recoverable amount cannot be determined for the individual asset, the impairment test is conducted on the cash generating unit (CGU) to which the asset belongs. Impairment losses are recognized as expenses in the income statement affecting net income.

An impairment loss recognized for prior periods is reversed if there has been a change in the estimates used to determine the asset’s (or the CGU’s) recoverable amount since the last impairment loss was recognized. The carrying amount of the asset (or the CGU) is increased to the newly estimated recoverable amount. The carrying amount is limited to the amount that would have been determined if no impairment loss had been recognized in prior years for the asset (or the CGU).

Customer Relationships and Similar Values

Customer relationships for activities in the Care segment with definite useful lives of between five and six years were allocated to the assets of the discontinued operations in the fiscal year under review.

The acquired “BUWOG” brand name for the development business was written off in full in the amount of € 66.6 million as part of an (ad hoc) impairment test conducted in the second quarter of 2023 for the Development segment. Information on the approach to impairment testing can be found in the subchapter “Goodwill”.

Goodwill

Accounting Policies

Goodwill results from a business combination and is defined as the amount by which the total consideration for shares in a company or group of companies exceeds the pro rata net assets acquired. The net assets are the total of the identifiable assets acquired that are valued at fair value in accordance with IFRS 3 as well as the assumed liabilities and contingent liabilities.

Goodwill is not subject to amortization, but rather is subjected to impairment testing on an annual basis. It is also tested for impairment whenever events or circumstances indicating an impairment arise.

The impairment testing of goodwill is performed at the level of cash generating units (CGUs) or a group of CGUs. A CGU is the smallest group of assets which generates cash inflows that are largely independent of the cash inflows generated by other assets or other groups of assets. Goodwill purchased as part of a business combination is allocated to the CGUs or groups of CGUs that are expected to produce benefits resulting from the synergy effects of the combination.

At Vonovia, each property meets the requirements for classification as a CGU as a general rule. As part of operational management, these properties are grouped first of all to form geographically structured business units and then to form regional business areas. Since the regional business areas are the lowest level within the company at which goodwill is monitored for internal management purposes, the impairment test is performed at business area level and, as a result, in accordance with IAS 36.80 for a group of CGUs. The acquired assets are allocated to the business areas based on the geographical location of the properties. A further group of CGUs for which goodwill is monitored for internal management purposes relates to the Value-add Business segment. The third group of CGUs, to which goodwill was allocated and monitored for management purposes, relates to the Development segment. As a result of the acquisition of Deutsche Wohnen SE, the Care segment was added as a further CGU, which was also monitored for internal management purposes. The corresponding balance sheet items are presented as a discontinued operation and have been reclassified to the assets of discontinued operations.

The group of CGUs to which goodwill has been allocated are tested for impairment on a regular basis. This involves comparing the recoverable amount with the carrying amount of the group of CGUs. The recoverable amount of the group of CGUs is either its value in use or fair value less costs of sale, whichever is higher. When calculating the value in use, the estimated future cash flows are discounted to their cash value. Discount rates before tax are used that reflect the current market assessment of the interest rate effect and the specific risks associated with the regional business areas and the Value-add, Development and Care segments.

If goodwill has been allocated to a group of CGUs and its carrying amount exceeds the recoverable amount, the goodwill is to be written down in the amount of the difference in the first instance. Any need for impairment in excess of this amount is distributed among the other assets in the group of CGUs in proportion to their carrying amount. The individual fair value less costs to sell, value in use or zero must not be undercut in this regard.

Impairment losses that have been realized as part of the valuation of goodwill are not reversed in the following years.

Groups of Cash-Generating Units

Groups of Cash-Generating Units

in € million

Value-add segment

Development segment

Group

Goodwill as of Dec. 31, 2022

1,391.7

138.2

1,529.9

Impairment

-138.2

-138.2

Goodwill as of Dec. 31, 2023

1,391.7

0.0

1,391.7

Trademark rights as of Dec. 31, 2022

66.6

66.6

Impairment

-66.6

-66.6

Trademark rights as of Dec. 31, 2023

0.0

0.0

The carrying amount of goodwill came to € 1,391.7 million as of December 31, 2023. This means that goodwill has dropped by € 138.2 million compared with December 31, 2022. The change is due to the impairment of € 138.2 million in the second quarter of 2023 identified as part of the (ad hoc) impairment test performed in the second quarter of 2023. 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 acknowledged by 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 average total 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

Jun. 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

For the purposes of the regular annual impairment test on goodwill as of December 31, 2023, the five-year plan for the Value-add segment for the fiscal years from 2024 to 2028 was taken as a basis. This also forms part of the five-year plan for the Group as a whole as approved by the Management Board and acknowledged by the Supervisory Board. The plan is based on assessments regarding the development of the operating business areas in terms of future revenue, expenses and margins, and taking current market developments into account.

The regular annual impairment test was performed for the Value-add group of CGUs as of December 31, 2023. The value of the goodwill for the Value-add group of CGUs was ultimately confirmed. Developments in the Value-add segment are characterized primarily by the extension of existing business areas (craftsmen’s organization, multimedia, management of residential property, smart metering, energy service, etc.). On the other hand, there is an increase in operating expenses, taking into account the rate of inflation. The development in these values is in line with past experiences of business model development.

The cash flows from the last detailed planning year were derived to calculate the perpetual annuity.

A constant growth rate of 1.0% was assumed for the Value-add group of CGUs.

The weighted average cost of capital before tax is based on the risk-free interest rate calculated as a three-month average using the Svensson method, a market risk premium and a levered beta. The levered beta and the equity ratios used are determined on the basis of a peer comparison. The main parameters are shown in the following table:

Parameters for WACC Calculation – Value-add Segment

Parameters for WACC Calculation for the Value-add Segment

Dec. 31, 2022

Dec. 31, 2023

Risk-free interest rate in %

2.00

2.75

Market risk premium in %

7.00

7.00

Levered beta

0.76

0.73

WACC (before tax) in %

6.10

7.12

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 segment

Goodwill and trading rights as of Dec. 31, 2023 in € million

1,391.7

Headroom in € million

101.6

Impairment starts with an increase of the WACC in percentage points

0.18

Full impairment in the event of an increase in the WACC in %

8.51

Goodwill and trading rights as of Dec. 31, 2022 in € million

1,391.7

Headroom in € million

830.6

Impairment starts with an increase of the WACC in percentage points

1.19

Full impairment in the event of an increase in the WACC in %

10.18

In the event of a drop of 0.25 percentage points in the planned sustainable growth rate, there would be impairment losses of € 19.2 million in the Value-add segment.

In the previous year, a drop of 0.25 percentage points in the planned sustainable growth rate would not have resulted in any impairment losses in the Value-add segment.