12. Intangible assets and goodwill
| in thousand EUR | Goodwill |
Trademarks, licences and customer portfolios |
Other |
Total |
||||
|---|---|---|---|---|---|---|---|---|
| Cost | ||||||||
| At 1 January 2021 | – | 12 319 | 7 457 | 19 776 | ||||
| Additions | – | 293 | 1 073 | 1 366 | ||||
| Change in consolidation scope 1 | 264 | 2 266 | – | 2 530 | ||||
| Disposals | – | – | –1 285 | –1 285 | ||||
| Reclassifications | – | 108 | –108 | – | ||||
| Currency effects | 2 | 20 | 31 | 53 | ||||
| At 31 December 2021 | 266 | 15 006 | 7 168 | 22 440 | ||||
| Additions | – | 395 | 31 | 426 | ||||
| Currency effects | 31 | 266 | 154 | 451 | ||||
| At 31 December 2022 | 297 | 15 667 | 7 353 | 23 317 | ||||
| Accumulated amortization and impairment | ||||||||
| At 1 January 2021 | – | 11 122 | 6 004 | 17 126 | ||||
| Charge for the year | – | 281 | 30 | 311 | ||||
| Change in consolidation scope 1 | – | 718 | – | 718 | ||||
| Reclassifications | – | 5 | –5 | – | ||||
| Currency effects | – | 7 | 20 | 27 | ||||
| At 31 December 2021 | – | 12 133 | 6 049 | 18 182 | ||||
| Charge for the year | – | 282 | 26 | 308 | ||||
| Impairment | 310 | – | – | 310 | ||||
| Currency effects | –13 | 84 | 29 | 100 | ||||
| At 31 December 2022 | 297 | 12 499 | 6 104 | 18 900 | ||||
| Carrying amount | ||||||||
| At 31 December 2021 | 266 | 2 873 | 1 119 | 4 258 | ||||
| At 31 December 2022 | – | 3 168 | 1 249 | 4 417 | ||||
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1 Please refer to note 32 for further details about the investment in a subsidiary
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Other intangible assets mainly include forest concessions and software.
Accounting policies
Acquired goodwill and acquired intangible assets with indefinite useful lives are recognized as assets at the date of the acquisition. After initial recognition, these positions are measured at cost less any accumulated impairment losses. They are not amortized, but annually tested for impairment – or when the circumstances indicate that the carrying value may be impaired.
Forest concessions are classified as intangible assets, as the right to direct the use of the concession is not with the Group, but with the government or the land owner. Other intangible assets have a finite useful life and are carried at cost less accumulated amortization and impairment loss. Amortization is calculated using the straight-line method to allocate the cost over their estimated useful lives of 12 to 50 years.
Valuation process for goodwill
The Group’s impairment test for goodwill and intangible assets with indefinite lives is based on value-in-use calculations. The key assumptions used to determine the recoverable amount for the different cash generating units are disclosed in below. The projections are based on knowledge and experience and also on judgements made by management as to the probable economic development of the relevant markets.
Carbon & Energy
In 2021, as a result of the purchase accounting from the acquisition of remaining 60 % interest in MIL Energia Renovável Ltda. (see Note 32), a goodwill of EUR 0.3 million was recognized and allocated to the cash generating unit “Carbon & Energy”. The value-in-use calculation was done by an independent external valuation firm in Brazil. As a result of the analysis, management did not identify an impairment for this cash-generating unit to which goodwill of EUR 0.3 million was allocated.
None of the goodwill recognized was expected to be deductible for income tax purposes.
In 2022, the gross margin had to be adjusted downward due to the update of the projections, as there are uncertainties regarding the upcoming entry of MIL Energia Renovável Ltda. into the Brazilian free energy market. As a result, the goodwill of EUR 0.3 million was fully impaired.
Key assumption used in value-in-use calculations and sensitivity to changes in assumptions
The calculation of value in use for Carbon & Energy CGU is most sensitive to the following assumptions:
- Discount rate
- Gross margin
Discount rate
Discount rate represent the current market assessment of the risks specific to Carbon & Energy CGU, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based on the specific circumstances of the Group and its operating segments and is derived from its weighted average cost of capital (WACC). The WACC takes into account both debt and equity. The cost of equity is derived from the expected return on investment by the Group’s investors. The cost of debt is based on the interest-bearing borrowings the Group is obliged to service. Segment-specific risk is incorporated by applying individual beta factors. The beta factors are evaluated annually based on publicly available market data.
In 2022, in determining the pre-tax weighted average cost of capital (WACC) a discount rate of 16.74 % (2021: 15.13 %) has been applied considering the following inputs:
| 2022 | 2021 | |||
|---|---|---|---|---|
| Unlevered beta factor | 0.80 | 0.80 | ||
| Risk free rate | 2.0% | 2.5% | ||
| Equity risk premium | 7.5% | 5.5% | ||
| Debt/Equity ratio | 71.5% | 71.5% | ||
| Tax rate | 25.0% | 23.8% |
Gross margin
Gross margins are based on average values achieved in years preceding the beginning of the budget period. In 2021, the gross margins for the Carbon & Energy CGU used for 2022 and 2023 corresponded to 10.3 %, and from 2024 to 2027 to 30.0 %. These were increased over the budget period for anticipated efficiency improvements. Decreased demand can lead to a decline in the gross margin.
In 2022, as described above, uncertainties regarding the upcoming entry of MIL Energia Renovável Ltda. into the Brazilian free energy market as of March 2023 led to a downward adjustment of gross margin expectations from 2023 onwards to a break-even result as to the actual energy prices. Future price increases cannot be taken into account as the predictability is limited.