26 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, 2019 |
68.3 |
6.7 |
8.5 |
66.6 |
3,860.9 |
4,011.0 |
Additions due to business combinations |
3.5 |
– |
– |
– |
744.7 |
748.2 |
Additions |
17.0 |
1.5 |
1.9 |
– |
– |
20.4 |
Disposals |
-8.0 |
– |
– |
– |
– |
-8.0 |
Changes in value from currency translation |
0.1 |
– |
– |
– |
9.1 |
9.2 |
Transfers |
4.8 |
-3.1 |
– |
– |
– |
1.7 |
As of Dec. 31, 2019 |
85.7 |
5.1 |
10.4 |
66.6 |
4,614.7 |
4,782.5 |
Accumulated amortization |
|
|
|
|
|
|
As of Jan. 1, 2019 |
41.6 |
4.9 |
2.8 |
– |
1,018.5 |
1,067.8 |
Additions due to business combinations |
0.7 |
– |
– |
– |
– |
0.7 |
Amortization in reporting year |
11.9 |
1.3 |
0.9 |
– |
– |
14.1 |
Impairment |
– |
– |
– |
– |
2,103.5 |
2,103.5 |
Disposals |
-8.0 |
– |
– |
– |
– |
-8.0 |
Transfers |
3.5 |
-3.1 |
– |
– |
– |
0.4 |
As of Dec. 31, 2019 |
49.7 |
3.1 |
3.7 |
– |
3,122.0 |
3,178.5 |
Carrying amounts |
|
|
|
|
|
|
As of Dec. 31, 2019 |
36.0 |
2.0 |
6.7 |
66.6 |
1,492.7 |
1,604.0 |
|
|
|
|
|
|
|
Cost |
|
|
|
|
|
|
As of Jan. 1, 2018 |
37.3 |
6.5 |
12.1 |
– |
2.950.8 |
3,006.7 |
Additions due to business combinations |
19.6 |
– |
– |
66.6 |
906.4 |
992.6 |
Additions |
17.5 |
1.0 |
– |
– |
– |
18.5 |
Disposals |
-9.6 |
-0.8 |
-3.6 |
– |
– |
-14.0 |
Changes in value from currency translation |
– |
– |
– |
– |
3.7 |
3.7 |
Transfers |
3.5 |
– |
– |
– |
– |
3.5 |
As of Dec. 31, 2018 |
68.3 |
6.7 |
8.5 |
66.6 |
3.860.9 |
4,011.0 |
Accumulated amortization |
|
|
|
|
|
|
As of Jan. 1, 2018 |
23.7 |
3.3 |
5.3 |
– |
337.3 |
369.6 |
Additions due to business combinations |
9.1 |
– |
– |
– |
– |
9.1 |
Additions |
15.7 |
2.4 |
1.1 |
– |
– |
19.2 |
Impairment |
– |
– |
– |
– |
681.2 |
681.2 |
Disposals |
-9.3 |
-0.8 |
-3.6 |
– |
– |
-13.7 |
Transfers |
2.4 |
– |
– |
– |
– |
2.4 |
As of Dec. 31, 2018 |
41.6 |
4.9 |
2.8 |
– |
1.018.5 |
1,067.8 |
Carrying amounts |
|
|
|
|
|
|
As of Dec. 31, 2018 |
26.7 |
1.8 |
5.7 |
66.6 |
2.842.4 |
2,943.2 |
|
|
|
|
|
|
|
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 as well as property, plant and equipment 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 with effect on 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
The brand name “BUWOG Group” for the development business was identified within the framework of the purchase price allocation for BUWOG as a material asset with indefinite useful life and still recognized at a value of € 66.6 million.
Goodwill
Accounting Policies
Goodwill results from a business combination and is defined as the amount by which the acquisition costs for shares in a company or group of companies exceed 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 cash-generating units. A cash-generating unit 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 segment (formerly “Value-add Business”). The third group of CGUs to which goodwill is allocated and for which goodwill is monitored for management purposes relates to the Development segment.
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 business areas/the Value-add and Development 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 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.
|
Rental segment |
|
|
|
|
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
in € million |
North area |
East area |
Southeast area |
West area |
Middle area |
South area |
Central area |
Sweden business area |
Value-add segment |
Development segment |
not allocated |
Group |
||
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Goodwill 2018 |
333.5 |
– |
435.6 |
680.8 |
501.3 |
290.8 |
19.2 |
196.6 |
278.5 |
106.1 |
– |
2,842.4 |
||
Additions due to business combinations |
– |
– |
– |
– |
– |
– |
– |
– |
– |
– |
744.7 |
744.7 |
||
Reallocation |
73.7 |
105.2 |
– |
-257.0 |
– |
93.8 |
-15.7 |
– |
– |
– |
– |
0.0 |
||
Disposal due to depreciation |
-333.5 |
-105.2 |
-435.6 |
-339.8 |
-501.3 |
-384.6 |
-3.5 |
– |
– |
– |
– |
-2,103.5 |
||
Currency translation differences |
– |
– |
– |
– |
– |
– |
– |
-3.7 |
– |
– |
12.8 |
9.1 |
||
Goodwill 2019 |
73.7 |
0.0 |
0.0 |
84.0 |
0.0 |
0.0 |
0.0 |
192.9 |
278.5 |
106.1 |
757.5 |
1,492.7 |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
WACC before tax Dec. 31, 2019 in % |
3.8 |
– |
– |
3.8 |
– |
– |
– |
3.8 |
4.1 |
4.8 |
– |
– |
||
WACC before tax June 30/July 1, 2019 in %* |
4.8 |
4.8 |
4.9 |
4.9 |
4.9 |
4.8 |
4.8 |
– |
– |
– |
– |
– |
||
WACC before tax Dec. 31, 2018 in % |
4.5 |
4.5 |
4.6 |
4.6 |
4.6 |
4.5 |
4.5 |
4.7 |
5.1 |
6.6 |
– |
– |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Sustainable rate of increase 2019 in % |
1.0 |
– |
– |
0.9 |
– |
– |
– |
1.0 |
1.0 |
1.0 |
– |
1.0 |
||
Sustainable rate of increase 2018 in % |
1.0 |
1.1 |
1.0 |
0.8 |
1.1 |
1.1 |
1.0 |
1.0 |
1.0 |
1.0 |
– |
1.0 |
||
Goodwill came to € 1,492.7 million as of December 31, 2019. This means that goodwill has dropped by € 1,349.7 million compared with December 31, 2018. The change is due to an impairment loss of € 2,103.5 million, an opposing addition through the acquisition of Hembla AB in the amount of € 744.7 million and a positive effect resulting from currency changes affecting the Swedish krona in the amount of € 9.1 million.
Part of the impairment loss in the amount of € 1,901.0 million is a result of the impairment test carried out in the second quarter of 2019. The € 2,258.7 million increase in the value of the real estate portfolio in the first half of the 2019 fiscal year (thereof € 2,056.2 million in Germany), together with the revision of the regional structure within Germany that was carried out with effect from July 1, 2019, constituted a triggering event within the meaning of IAS 36 as of June 30, 2019.
In general, an increase in the value of the real estate portfolio increases the carrying amount of the CGU affected by the measurement, which can, in turn, lead to impairment losses being recognized on the goodwill allocated to the business areas.
Furthermore, due to the revised regional structure, the two business areas Southeast and Middle are no longer included as of July 1, 2019, necessitating a reallocation of the remaining goodwill for the Rental segment among the remaining German business areas North, East, West, South and Central as of July 1, 2019. The reallocation of the German business areas of the Rental segment as of July 1, 2019 resulted in another impairment loss of € 202.5 million being recognized. Goodwill was written off in full for the business areas East, South and Central. In the West area, the remaining goodwill amounts to € 84.0 million as of December 31, 2019, with goodwill of € 73.7 million remaining for the North area.
The values in use as of June 30, 2019 came to € 5.8 billion for the North area, € 3.4 billion for the Southeast area, € 4.8 billion for the West area, € 4.9 billion for the Middle area and € 5.5 billion for the South area. As of July 1, 2019, the values in use came to € 7.8 billion for the East area, € 5.8 billion for the South area and € 0.3 billion for the Central area.
The impairment loss was recognized in the consolidated income statement under under depreciation, amortization and impairment.
The annual impairment test carried out in the fourth quarter of 2019 did not result in the need for any further goodwill impairments.
The preliminary goodwill in the amount of € 757.5 million resulting from the acquisition of Hembla, including exchange rate effects attributable to this acquisition, was not subjected to an impairment test in accordance with IAS 36.84 as of December 31, 2019. The reason is that this amount has not yet been allocated or distributed to the CGU due to the existing uncertainty as to the amount of goodwill. There were no indications as of the reporting date that this goodwill might be impaired, either individually or together with the CGU Sweden (into which it will likely be incorporated).
As part of the impairment test and 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 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.
The growth rate for the CGUs of the Rental segment was calculated regionally on the basis of in-place rents and limited to 1% for the segment as a whole. With regard to the regional business areas of the Rental segment, the main drivers behind the results of the five-year plan are the increase in gross rental income by an average of 3.3% every year as well as the planned vacancy rate on the level of 2019 at the end of the detailed planning period.
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, 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.
The Development segment is characterized by the construction of new buildings for Vonovia’s own portfolio and by the sale of properties to third parties. The main drivers of the results in the Development segment are the investment costs, the number of units sold and the sales margin that can be generated.
A constant growth rate of 1% was assumed for the Value-add and Development segments.
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 and the equity ratios used are determined on the basis of a peer comparison. In addition, country-specific cost surcharges were calculated for the Sweden business area and the Development segment. The main parameters are shown in the following table:
|
Rental segment |
|
|
|||
|---|---|---|---|---|---|---|
Dec. 31, 2019 |
Germany |
Sweden |
Value-add segment |
Development segment |
||
|
||||||
|
|
|
|
|
||
Risk-free interest rate in % |
0.2 |
0.2 |
0.2 |
0.2 |
||
Market risk premium in % |
7.75 |
7.75 |
7.75 |
7.75 |
||
Levered beta |
0.52 |
0.53 |
0.52 |
0.62 |
||
Country-specific premium in % |
– |
0.1 |
– |
0.1 |
||
|
|
|
|
|
||
June 30/July 1, 2019* |
|
|
|
|
||
Risk-free interest rate in % |
0.8 |
– |
– |
– |
||
Market risk premium in % |
7.00 |
– |
– |
– |
||
Levered beta |
0.64 |
– |
– |
– |
||
Country-specific premium in % |
– |
– |
– |
– |
||
|
|
|
|
|
||
Dec. 31, 2018 |
|
|
|
|
||
Risk-free interest rate in % |
1.1 |
1.1 |
1.1 |
1.1 |
||
Market risk premium in % |
7.00 |
7.00 |
7.00 |
7.00 |
||
Levered beta |
0.53 |
0.53 |
0.53 |
0.91 |
||
Country-specific premium in % |
– |
0.2 |
– |
0.1 |
||
An increase in the cost of capital will result in the following need for impairment:
|
Rental segment |
|
|
||
|---|---|---|---|---|---|
|
North area |
West area |
Sweden business area |
Value-add segment |
Development segment |
|
|
|
|
|
|
Goodwill 2019 in € million |
73.7 |
84.0 |
192.9 |
278.5 |
106.1 |
Impairment starts with an increase of the WACC in percentage points |
0.3 |
0.4 |
0.7 |
8.6 |
8.3 |
Full write-off in the event of an increase in the WACC in % |
0.3 |
0.5 |
0.9 |
18.0 |
9.5 |
|
|
|
|
|
|
If the planned sustainable rate of increase were to decline by 0.50 percentage points, this would result in a full impairment loss of € 73.7 million being recognized against the goodwill remaining in the North business area. In the West area, an impairment loss of € 77.0 million would be recognized if the sustainable rate of increase were to decline by 0.50 percentage points.
In the Sweden business area as well as in the Value-add and Development segments, a 0.50 percentage point drop in the sustainable rate of increase would not result in any goodwill impairment.