(19) Other intangible assets
Accounting and measurement policies
Recognition and initial measurement of purchased intangible assets
In the course of in-licensing, the portion of the consideration paid by the Group to acquire intellectual property is recognized as an intangible asset. If development services are also acquired from the selling contract party, an appropriate portion of the consideration is recognized as deferred income and allocated to research and development costs in line with the service performance if capitalization is not possible.
Contingent consideration in the form of milestone payments in connection with the purchase of intangible assets arising outside a business combination is capitalized as an intangible asset and recognized as a financial liability once the milestone is reached.
Intangible assets acquired in the course of business combinations are recognized at fair value on the acquisition date. This also includes contingent considerations.
Recognition and initial measurement of internally generated intangible assets
Owing to the high risks until pharmaceutical products are approved, the criteria for the capitalization of development costs in accordance with IAS 38 are not met in the Healthcare business sector for the development of drug candidates. Costs incurred after regulatory approval are insignificant and are therefore not recognized as intangible assets. In the Life Science and Performance Materials business sectors, development expenses are capitalized as soon as the criteria have been met. This includes expenses that arose as part of registration for REACH. Furthermore, development expenses for internally developed software are capitalized provided that the relevant criteria have been fulfilled.
Subsequent measurement
In the course of subsequent measurement, the option to remeasure intangible assets at fair value is not exercised.
Intangible assets with a finite useful life are amortized using the straight-line method. The useful lives of customer relationships, brand names, and trademarks as well as marketing authorizations, acquired patents, licenses and similar rights, and software are between three and 24 years. In determining these useful lives, the Group considers factors including the typical product life cycles for each asset and publicly available information about the estimated useful lives of similar assets.
An impairment test is performed if there are indications of impairment. Indications of impairment and the need to reverse impairment losses are determined once a year and on an ad hoc basis with the involvement of the responsible departments and taking external and internal information into consideration. The Group examines the existence of indications of impairment using various factors, particularly deviations from forecasts and the analysis of changes in medium-term planning. In the event of impairment, an impairment loss is recorded under other operating expenses. Impairment losses are reversed to the amortized cost and presented in other operating income if the original reasons for impairment no longer apply. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment when a triggering event arises or at least once a year. Amortization does not begin until the product is ready for economic use and is recognized on a straight-line basis over the shorter of the patent or contract term and the estimated useful life.
Significant discretionary decisions and sources of estimation uncertainty
Purchased intangible assets
The identification and measurement of intangible assets acquired in the course of business combinations are subject to significant discretion and estimation uncertainty.
In connection with in-licensing agreements in the Healthcare business sector, a discretionary estimate is made of the extent to which upfront payments and milestone payments represent remuneration for services received or whether such payments result in an in-licensing of an intangible asset that has to be capitalized.
Determination of the useful life
Substantial assumptions and estimates are required to determine the appropriate level of amortization of other intangible assets. This relates in particular to the determination of the underlying useful life.
If the amortization of intangible assets from customer relationships, brands, trademarks, marketing authorizations, patents, licenses and similar rights and other had been 10% higher, for example due to shortened useful lives, profit before income tax would have been € 86 million lower in fiscal 2020 (2019: € 112 million).
Identification of a need to recognize impairment loss and reverse impairment loss
Discretionary decisions are required in the identification of objective evidence of impairment as well as in identifying the need to reverse impairment of other intangible assets.
|
|
Customer relationships, brands and trademarks1 |
|
Marketing authorizations, patents, licenses, similar rights, and other items |
|
Software and software in development1 |
|
Advance payments |
|
Total1 |
||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
€ million |
|
|
|
Finite useful life1 |
|
Not yet available for use |
|
|
|
|
|
|
||||
Cost as of Jan. 1, 2019 |
|
7,402 |
|
10,739 |
|
885 |
|
755 |
|
– |
|
19,780 |
||||
Additions due to business combinations |
|
2,401 |
|
339 |
|
181 |
|
23 |
|
– |
|
2,944 |
||||
Other additions |
|
– |
|
46 |
|
40 |
|
122 |
|
– |
|
208 |
||||
Disposals due to divestments/ Reclassification to assets held for sale |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
||||
Other disposals |
|
-2 |
|
-19 |
|
– |
|
-4 |
|
– |
|
-26 |
||||
Transfers |
|
-1 |
|
1 |
|
-1 |
|
5 |
|
-1 |
|
5 |
||||
Currency translation difference |
|
94 |
|
34 |
|
-4 |
|
5 |
|
– |
|
129 |
||||
Dec. 31, 2019 |
|
9,893 |
|
11,141 |
|
1,101 |
|
906 |
|
– |
|
23,040 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accumulated amortization and impairment losses as of Jan. 1, 2019 |
|
-2,326 |
|
-9,195 |
|
-596 |
|
-426 |
|
– |
|
-12,544 |
||||
Depreciation, amortization, and write-downs |
|
-466 |
|
-654 |
|
– |
|
-77 |
|
– |
|
-1,197 |
||||
Impairment losses |
|
– |
|
– |
|
-33 |
|
-1 |
|
– |
|
-33 |
||||
Reversals of impairment losses |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
||||
Disposals due to divestments/ Reclassification to assets held for sale |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
||||
Other disposals |
|
2 |
|
17 |
|
– |
|
4 |
|
– |
|
23 |
||||
Transfers |
|
– |
|
6 |
|
-5 |
|
– |
|
– |
|
– |
||||
Currency translation difference |
|
-39 |
|
-26 |
|
– |
|
-4 |
|
– |
|
-69 |
||||
Dec. 31, 2019 |
|
-2,829 |
|
-9,853 |
|
-634 |
|
-503 |
|
– |
|
-13,820 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net carrying amounts as of Dec. 31, 2019 |
|
7,064 |
|
1,287 |
|
467 |
|
403 |
|
– |
|
9,221 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cost as of Jan. 1, 2020 |
|
9,893 |
|
11,141 |
|
1,101 |
|
906 |
|
– |
|
23,040 |
||||
Additions due to business combinations |
|
– |
|
4 |
|
– |
|
– |
|
– |
|
4 |
||||
Other additions |
|
– |
|
26 |
|
33 |
|
97 |
|
– |
|
157 |
||||
Disposals due to divestments/ Reclassification to assets held for sale |
|
-4 |
|
-2 |
|
– |
|
-6 |
|
– |
|
-12 |
||||
Other disposals |
|
– |
|
-11 |
|
-27 |
|
-25 |
|
– |
|
-63 |
||||
Transfers |
|
– |
|
5 |
|
-5 |
|
– |
|
– |
|
– |
||||
Currency translation difference |
|
-741 |
|
-147 |
|
-16 |
|
-28 |
|
– |
|
-933 |
||||
Dec. 31, 2020 |
|
9,148 |
|
11,015 |
|
1,086 |
|
944 |
|
– |
|
22,193 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Accumulated depreciation and impairment losses as of Jan. 1, 2020 |
|
-2,829 |
|
-9,853 |
|
-634 |
|
-503 |
|
– |
|
-13,820 |
||||
Depreciation, amortization, and write-downs |
|
-577 |
|
-281 |
|
– |
|
-82 |
|
– |
|
-940 |
||||
Impairment losses |
|
-26 |
|
-68 |
|
-62 |
|
-4 |
|
– |
|
-160 |
||||
Reversals of impairment losses |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
||||
Disposals due to divestments/ Reclassification to assets held for sale |
|
4 |
|
2 |
|
– |
|
1 |
|
– |
|
7 |
||||
Other disposals |
|
– |
|
5 |
|
– |
|
24 |
|
– |
|
29 |
||||
Transfers |
|
– |
|
– |
|
– |
|
– |
|
– |
|
– |
||||
Currency translation difference |
|
217 |
|
104 |
|
1 |
|
21 |
|
– |
|
343 |
||||
Dec. 31, 2020 |
|
-3,211 |
|
-10,091 |
|
-695 |
|
-543 |
|
– |
|
-14,540 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net carrying amounts as of Dec. 31, 2020 |
|
5,937 |
|
924 |
|
391 |
|
401 |
|
– |
|
7,653 |
||||
|
Additions/disposals due to company acquisitions and divestments
Additions due to business combinations in fiscal 2019 mainly included additions to intangible assets due to the acquisition of Versum Materials, Inc., United States. The changes in the scope of consolidation in fiscal 2020 resulted from the acquisition of Resolution Spectra Systems S.A.S., France, and the sale of the Allergopharma allergy business to Dermapharm Beteiligungs GmbH, Grünwald. See Note (6) “Acquisitions and divestments” for detailed information on the acquisitions and divestments and the related effects.
The additions to market authorizations, patents, licenses, similar rights, and other items with finite useful lives in fiscal 2020 in the amount of € 26 million (2019: € 46 million) were mainly attributable to the Performance Materials business sector.
The additions to marketing authorizations, patents, licenses, similar rights, and other items not yet available for use amounted to € 33 million in fiscal 2020 (2019: € 40 million) and were mostly attributable to the Healthcare business sector.
The additions to software and software in development in the amount of € 97 million (2019: € 122 million) resulted mainly from development costs in connection with new ERP programs.
Loss allowances
In the second quarter of 2020, an analysis was conducted of the extent to which the impact of the Covid-19 pandemic could also indicate potential impairment losses affecting non-financial assets. This analysis found that individual indicators of impairment within the meaning of IAS 36 were considered to have been fulfilled for intangible assets in the Performance Materials and Healthcare business sectors in the second quarter of 2020. The impairment tests performed as a result identified impairment of intangible assets in the Performance Materials business sector in the amount of € 96 million in the second quarter of 2020. Of this figure, € 68 million was attributable to technology-related intangible assets, the majority of which were acquired as part of the acquisition of AZ Electronic Materials S.A., Luxembourg.
In addition, impairment losses were recognized on an ad hoc basis for market authorizations, patents, licenses, similar rights, and other items not yet available for use in the amount of € 62 million (2019: € 33 million). Of this figure, € 54 million related to the Healthcare business sector, with around € 36 million resulting from the discontinuation of two pre-clinical research projects.
Overview of material other intangible assets
The carrying amounts of customer relationships, brands, and trademarks as well as marketing authorizations, patents, licenses, similar rights, and other items were attributable to the business sectors as follows:
€ million |
|
Remaining useful life in years |
|
Healthcare |
|
Life Science |
|
Performance Materials |
|
Total Dec. 31, 2020 |
|
Total Dec. 31, 20191 |
||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Customer relationships, brands and trademarks |
|
|
|
– |
|
3,849 |
|
2,088 |
|
5,937 |
|
7,064 |
||||
Customer relationships |
|
0.5 – 17.8 |
|
– |
|
3,279 |
|
2,050 |
|
5,329 |
|
6,291 |
||||
thereof from the following acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sigma-Aldrich Corporation |
|
15.9 – 16.9 |
|
– |
|
2,893 |
|
129 |
|
3,023 |
|
3,520 |
||||
Versum Materials, Inc. |
|
5.8 – 17.8 |
|
– |
|
– |
|
1,921 |
|
1,921 |
|
2,267 |
||||
Millipore Corporation |
|
0.5 – 6.5 |
|
– |
|
362 |
|
– |
|
362 |
|
470 |
||||
Brands and trademarks |
|
2.5 – 6.9 |
|
– |
|
570 |
|
38 |
|
608 |
|
773 |
||||
thereof from the following acquisition: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sigma-Aldrich Corporation |
|
6.9 |
|
– |
|
450 |
|
– |
|
450 |
|
563 |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Marketing authorizations, patents, licenses and similar rights and other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Finite useful life |
|
|
|
62 |
|
245 |
|
617 |
|
924 |
|
1,287 |
||||
Marketing authorizations |
|
– |
|
17 |
|
– |
|
– |
|
17 |
|
58 |
||||
Xalkori® |
|
1.0 |
|
10 |
|
– |
|
– |
|
10 |
|
45 |
||||
Other marketing authorizations |
|
|
|
7 |
|
– |
|
– |
|
7 |
|
13 |
||||
Patents, licenses and similar rights |
|
0.3 – 12.3 |
|
– |
|
241 |
|
599 |
|
840 |
|
1,151 |
||||
thereof from the following acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
AZ Electronic Materials S.A. |
|
0.3 – 12.3 |
|
– |
|
– |
|
333 |
|
333 |
|
516 |
||||
Versum Materials, Inc. |
|
3.8 – 5.8 |
|
– |
|
– |
|
206 |
|
206 |
|
268 |
||||
Others |
|
|
|
45 |
|
4 |
|
18 |
|
67 |
|
78 |
||||
Not yet available for use |
|
|
|
212 |
|
18 |
|
161 |
|
391 |
|
467 |
||||
thereof from the following acquisition: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Versum Materials, Inc. |
|
– |
|
– |
|
– |
|
151 |
|
151 |
|
177 |
||||
|