Intangible assets are recorded on the balance sheet at cost. Intangible assets identified following an acquisition as well as internally generated intangible assets are also included in this item.
They mainly consist of brands, customer relationships and formulas and patents.
With regard to brands, the use of the “discounted cashflow” method is preferred to enable the value in use to be monitored more easily following the acquisition.
Two approaches have been adopted to date:
These approaches are based on a qualitative analysis of the brand in order to ensure that the assumptions selected are relevant. The discount rate used is based on the weighted average cost of capital (WACC) for the target acquired. Terminal growth rates are consistent with available market data (generally 2.5% for Europe and 3%for the rest of the world, except in specific cases).
A brand may have a finite or an indefinite useful life span.
Local brands which are to be gradually replaced by an international brand already existing within the Group have a finite useful life span.
They are amortised over their useful lives as estimated at the date of acquisition.
International brands are brands which have an indefinite life span. They are tested for impairment at least once a year during the fourth quarter, and whenever an adverse event occurs.
Adverse events may result among other things from an increase in market interest rates or from a decrease in actual net sales or operational profit compared to forecasts.
The impairment test consists of calculating the recoverable amount of the brand based on the model adopted when the acquisition took place.
Customer relationships refer to relations developed with customers either through contractual arrangements or by non-contractual means through constant revenue streams resulting from the target’s competitive position or reputation in its market.
The useful life of a customer relationship is limited and varies depending on the estimated attrition rate of existing customers at the time of the acquisition.
The Group may decide to identify and value patents and formulas that it intends to develop.
The value of a patent or a formula is assessed on the basis of the future profits expected from its ownership in the future, in accordance with the royalty-based approach.
The amortisation period applicable to patents corresponds to the period during which they enjoy legal protection.
These mainly consist of software.
Innovation costs of software for internal use are capitalised for the programming, coding and testing phases. The costs of substantial updates and upgrades resulting in additional functions are also capitalised.
Capitalised innovation costs are amortised from the date the software is made available in the entity concerned and over its probable useful life, which, in most cases, is between five and eight years.
