4.10.3
Goodwill and other intangible assets

  Goodwill Brands Customer lists and licenses Software and development cost Total intangible assets
  € x 1,000 € x 1,000 € x 1,000 € x 1,000 € x 1,000
Cost
Balance at 1 January 2019
84,640
51,324
5,300
13,679
154,943
Investments - - - 4,993 4,993
Divestments - -5,375 - - -5,375
Divestments from discontinuation of business - -2,199 - -3,121 -5,320
Currency translation differences 439 801 -41 61 1,260
Balance at 1 January 2020
85,079
44,551
5,259
15,612
150,501
Investments - - - 1,298 1,298
Divestments - - - -2,672 -2,672
Currency translation differences - 122 -95 - 27
Balance at 31 December 2020
85,079
44,673
5,164
14,239
149,155
Accumulated depreciation
Balance at 1 January 2019
2,306
4,180
3,082
6,656
16,224
Amortisation 1) - 693 325 2,101 3,119
Divestments from discontinuation of business - - - -1,458 -1,458
Balance at 1 January 2020
2,306
4,873
3,407
7,299
17,885
Amortisation 1) - 693 310 2,001 3,005
Divestments       -2,672 -2,672
Impairment   300   3,636 3,936
Balance at 31 December 2020
2,306
5,866
3,717
10,265
22,154
Carrying amount
Balance at 1 January 2020
82,773
39,678
1,852
8,313
132,616
Balance at 31 December 2020
82,773
38,807
1,448
3,974
127,001
1) € 2,752 thousand is attributable to continuing operations and € 367 thousand is attributable to discontinued operations.

 

(A) Goodwill

Goodwill is tested for impairment annually or more frequently if there are indications of impairment losses. For the purposes of this test, goodwill is allocated to cash-generating units (CGU’s). Goodwill is allocated to the (group of) CGU’s that is expected to benefit from the business combination from which the goodwill arose. The CGU’s used in the assessment correspond with the operational segments and are Bikes and Parts.

The carrying amount of goodwill at segment level is divided as follows:

     
  2020 2019
  € x 1,000 € x 1,000
Bikes 65,411 65,411
Parts 17,362 17,362
Balance at 31 December
82,773
82,773

 

Goodwill impairment testing

The following main assumptions are used to determine the value-in-use of the segments Bikes and Parts and are based on expected developments in specific markets and countries and the forecasted impact for Accell Group:

  Bikes Bikes Parts Parts
  2020 2019 2020 2019
Expected average annual, organic turnover growth in the plan period 2021-2023 (2019: 2020-2022) 13,6% 9,9% 9,0% 6,2%
Expected average operating margin in the plan period 2021-2023 (2019: 2020-2022) 8,3% 7,8% 6,0% 4,2%
Trade working capital, based on the current ratio in relation to turnover 25,2% 33,1% 25,2% 25,5%

 

After the plan period 2021-2023, cash flows are extrapolated using a perpetual growth rate of 0.0% (2019: 0.2%) which is equal to the risk-free interest rate with a minimum of zero (2020 actual -0.4%). The cash flows are discounted using a post-tax weighted average cost of capital of 7.2% (2019: 6.9%). The discounting rate applied corresponds with a pre-tax weighted average cost of capital of 9.8% (2019: 9.3%). The impairment test in 2020 showed a substantial headroom in goodwill for both segments Bikes and Parts.

Sensitivity to changes in the main assumptions

Neither a 100 basis points adverse change in operating margin nor a 100 basis points higher discount rate resulted in a materially different outcome of the impairment test. Accell Group believes that any reasonably possible change in the main assumptions would not cause the carrying amount to exceed the recoverable amount of the cash-generating units Bikes or Parts.

Accounting estimates and judgements

The cash flow projections used in the value-in-use calculation for goodwill impairment testing contain various estimates and judgements (see table above). The robustness of the outcome of the goodwill impairment is tested via a sensitivity analysis on the main assumptions.

Accounting policy

Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses. Goodwill is tested annually for impairment. Impairment losses are recognised in profit or loss and are not reversed. Upon the disposal of a cash generating unit, the carrying amount of the goodwill attributed to that cash generating unit is taken into account in the calculation of the book profit or loss.

(B) Brands

The brands recognised at 31 December 2020 are included in the operating segment Bikes and consist primarily of the Raleigh (€ 18.7 million), Babboe (€ 8.7 million) and Ghost (€ 9.4 million) brands. In addition, the Nishiki, Carraro and Van Nicholas brands are valued at a total amount of € 2.0 million. 

With the exception of the relatively young Babboe brand (2007), which has a definite useful life of 15 years, all brands have indefinite useful lives as there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for Accell Group. The brands with indefinite useful lives are positioned in the middle and upper segments and have a long history and tradition in the regional and international markets in which they operate.

Brand impairment testing

In the annual impairment testing for brands with an indefinite life, Accell Group applies the income approach to determine the value-in-use. It is a technique by which fair value is estimated based on cash flows that the brand can be expected to generate over its useful life and uses valuation techniques to convert future cash flows or earnings to a single present value (discounted). The valuation technique applied by Accell Group is the Relief-from-Royalty method, which is a common present value technique for valuing marketing-related intangibles such as brands. The income concept of this method is based on projected royalty savings. It assumes that if the subject brand was not in control of Accell Group, a royalty would have to be paid to a third party to (develop and) use a comparable alternative intangible asset.

In Accell Group's brand impairment model, the valuation base is set at sales, tax payments are deducted and the present value of the hypothetical royalty savings (ranging from 3.2%-4.0% in 2020; 2.6%-4.0% in 2019) are calculated by applying a post-tax weighted average cost of capital of 7.2% (2019: 6.9%), which corresponds with a pre-tax weighted average cost of capital of 9.8% (2019: 9.3%). If applicable the tax amortisation benefit is considered. Based on the value-in-use the 2020 impairment test showed sufficient headroom for all tested brands except for Van Nicholas, which led to an impairment of € 0.3 million. This meant that the Van Nicholas brand had a value of € 0.8 million at 31 December 2020. 

Accounting estimates and judgements

The cash flow projections used in the value-in-use calculation for brand impairment testing include various estimates and judgements. Useful lives are estimated based on the market position of the brands and include an analysis of all relevant factors to determine whether there is a foreseeable limit to the period over which the asset is expected to generate net cash inflows.

Accounting policy

A brand is a group of complementary assets such as trademarks (or service marks) and their related trade names, formulas, recipes and technological expertise. Accell Group recognises a group of complementary intangible assets comprising a brand as a single asset if the individual fair value of the complementary assets is not reliably measurable. Brands, commonly arising on the acquisition of subsidiaries, are measured at cost less any accumulated depreciation and accumulated impairment losses. Brands can have an indefinite or definite useful life.

Brands with an indefinite useful life are tested annually for impairment, or more frequently if there are indications of impairment losses (same for a brand with definite life), by comparing its recoverable amount with its carrying amount. The recoverable amount is the higher of its fair value less cost to sell less cost of disposal and its value in use.

Brands with a definite useful life are amortised on a straight-line basis over the estimated useful life. Accell Group believes that straight-line depreciation most closely reflects the expected consumption pattern of the future economic benefits embodied in the brand. Amortisation methods and useful lives are reviewed at each reporting date and adjusted if appropriate.

(C) Customer lists and licenses

The customer lists and licenses consist of the Turkish dealer network, an extension of a licensing agreement and Comet's customer. The useful life of these assets is estimated at 20 years, 10 years and 20 years respectively and have been amortised as from 2012, 2013 and 2015 onwards. There were no impairment losses in 2020.

Accounting estimates and judgements

Useful lives are determined based on the estimated remaining useful life of the customer relationships or the period of the contractual arrangements.

Accounting policy

Customer relationships and licenses that are acquired by Accell Group and have definite useful lives are measured at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated to write off the cost of these assets less their estimated residual values (nil) using the straight-line method over their estimated useful lives from the date they are available for use.

Amortisation expenses and impairment losses are accounted for in the income statement within depreciation. Amortisation methods and useful lives are reviewed at each reporting date and adjusted if appropriate.

An impairment loss is recognised if the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in profit or loss. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

(D) Software and development cost

These include capital expenditure on both software and development. In 2020 Accell Group invested € 1.1 million in software, primarily related to CRM and single brand platforms, and capitalised € 0.2 million of development costs related to cargo-bikes and e-bikes. Impairments relate to the decision to cease the further development of the ERP system and return to previously used systems for the parts already implemented (€ 2.7 million in the corporate segment) and an innovation project in the bike segment (€ 1.0 million). 

Accounting estimates and judgements

Useful lives are determined based on the estimates regarding technical and commercial developments.

Accounting policy

Expenditure on research activities is recognised in profit or loss as incurred. Development expenditure is capitalised only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and Accell Group intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, this expenditure is recognised in profit or loss as incurred. Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortisation and any accumulated impairment losses. 

Software is measured at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated to write off the cost of intangible assets less their estimated residual values (nil) using the straight-line method over their estimated useful lives from the date they are available for use.

Amortisation is calculated to write off the cost of intangible assets less their estimated residual values (nil) using the straight-line method over their estimated useful lives from the date they are available for use. Amortisation expenses and impairment losses are accounted for in the income statement within depreciation. Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

An impairment loss is recognised if the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognised in profit or loss. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Accounting estimates and judgements

The estimated useful lives are as follows:

Brands Indefinite or 15 years        
Customer lists 10 - 20 years        
Licenses 10 years        
Software 3 - 7 years        
Development costs 3 - 5 years