18. Goodwill and other intangible assets

The acquisition costs as well as accumulated amortization and impairment of intangible assets consist of the following:

 

The carrying amounts for intangible assets as of December 31, 2022, and 2021, were as follows:

The item ‘Patents & technology’ on December 31, 2022, consists of patents worth EUR 3,744 thousand (Dec 31, 2021: EUR 5,311 thousand) and technology worth EUR 15,343 thousand (Dec 31, 2021: EUR 17,402 thousand). Unpatented technologies contain specific process know-how in the production process identified in the course of company acquisitions.

Internally generated intangible assets include development costs for technologies in the amount of EUR 5,743 thousand (Dec 31, 2021: EUR 6,890 thousand) as well as internally generated software in the amount of EUR 238 thousand (Dec 31, 2021: EUR 2,885 thousand).

The item ‘Intangible assets, other’ consists mainly of prepayments.

In addition to additions and disposals and scheduled amortization, the changes in intangible assets also resulted from positive exchange rate effects, in particular from the US dollar region.

The estimated useful lives for other intangible assets are as follows:

•Patents: 5 to 10 years

•Customer lists: 4 to 20 years

•Technology: 10 to 20 years

•Licenses, rights: 3 to 5 years

•Trademarks: indefinite or 20 years

•Software: 3 to 5 years

The change in goodwill is summarized as follows:

Besides the goodwill, there are intangible assets within trademarks with an indefinite useful life in the amount of EUR 29,908 thousand (2021: EUR 28,165 thousand) resulting from the acquisition of NDS in 2014. From a market perspective, NORMA Group assumed an indefinite useful life for these acquired trademarks, which mainly include the corporate brand NDS®, because these brands have been established in the market for a number of years and there is no foreseeable end to their useful life, therefore useful lives are indefinite. Trademarks with indefinite useful lives are fully allocated to the cash-generating unit (CGU) Americas.

Trademarks with an unknown term of use are subjected to an annual impairment test pursuant to IAS 36 on the basis of the recoverable amount pursuant to the procedure described in  NOTE 3. ‘SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – IMPAIRMENT OF NON-FINANCIAL ASSETS’.

On December 31, 2022, and 2021, the intangible assets were unsecured.

 

Impairment tests for goodwill

Goodwill is allocated to the Group’s cash-generating units (CGUs) identified according to geographical areas. A summary of the goodwill allocation is presented below:

Goodwill for the CGU Americas increased mainly due to currency effects.

The recoverable amount of a CGU is determined based on fair value less costs to sell, which is calculated by discounting projected cash flows. Based on the inputs used for this valuation technique, fair values are classified as Level 3 fair values.  NOTE 3 ‘SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES – FAIR VALUE ESTIMATION’. The determination of future cash flows is based on internal corporate planning, which is prepared with the “bottom-up” method using certain uniform Group-wide assumptions and covers a period of five years. The underlying parameters, such as sales growth and margins, are determined on the basis of expertise gained in the past, current economic results, and forecasts by external industry experts such as the VDMA industry association, the German Association of the Automotive Industry (VDA), and the LMC Automotive (LMCA). The average growth rates of sales in the detailed planning period are between 5.7% and 9.9%.

For the extrapolation of cash flows beyond this five-year period, the estimated growth rates given below are used. NORMA Group believes that these growth rates do not exceed the long-term average growth rate for the geographical area of the respective CGU.

The discount rates used are after-tax rates and reflect the specific risk of each CGU. The respective pre-tax interest rates are 12.11% (2021: 8.38%) for the CGU EMEA, 9.04% (2021: 6.24%) for the CGU Americas and 12.71% (2021: 8.71%) for the CGU Asia-Pacific.

The fair value less costs to sell is mainly determined by the terminal value (present value of the perpetual annuity), which is particularly sensitive to changes in the assumptions for the long-term growth rate and the discount rate. Both assumptions are determined individually for each cash-generating unit. The discount rates are based on the concept of Weighted Average Cost of Capital (WACC).

The further key assumptions used for fair value less costs to sell calculations are as follows:

The aforementioned assumptions relate to the goodwill impairment test performed as part of the annual impairment test regularly carried out as of September 30. Due to the interest rate development in the fourth quarter of 2022, a trigger of IAS 36.12 was relevant as of December 31, 2022, so that a further review was performed. Taking the following discount rates after taxes into account: EMEA CGU: 10.61%, Americas CGU: 7.60% and Asia-Pacific CGU: 10.80%, this additional review did not result in an impairment requirement either.

A sensitivity analysis for the individual CGUs takes into account any changes in the key assumptions that are considered possible. The sensitivity analysis was performed in isolation for all significant influencing factors, i.e., a change in the fair value of a cash-generating unit is only caused by a reduction or increase in the respective influencing factor.