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14 Intangible assets

The largest portion of the Group’s intangible assets is goodwill, arising as a result of the acquisition of the Group by Onex in 2015. The other intangible assets mainly consist of trademarks, customer relationships and technology-related assets. The trademarks have indefinite useful lives.

Composition of intangible assets

(In € million)

 

Goodwill

 

Trademarks

 

Customer relationships

 

Technology and other assets

 

Total

Cost

 

1,621.9

 

309.6

 

646.2

 

365.2

 

2,942.9

Accumulated amortisation and impairment losses

 

 

 

(305.4)

 

(177.2)

 

(482.6)

Carrying amount as of 31 December 2019

 

1,621.9

 

309.6

 

340.8

 

188.0

 

2,460.3

Cost

 

1,566.7

 

311.1

 

614.6

 

366.6

 

2,859.0

Accumulated amortisation and impairment losses

 

 

 

(351.7)

 

(214.5)

 

(566.2)

Carrying amount as of 31 December 2020

 

1,566.7

 

311.1

 

262.9

 

152.1

 

2,292.8

Carrying amount as of 1 January 2019

 

1,583.7

 

298.2

 

388.6

 

216.1

 

2,486.6

Additions

 

 

 

 

1.6

 

1.6

Additions through business combination

 

14.5

 

 

9.7

 

 

24.2

Amortisation

 

 

 

(63.6)

 

(36.3)

 

(99.9)

Effect of movements in exchange rates

 

23.7

 

11.4

 

6.1

 

6.6

 

47.8

Carrying amount as of 31 December 2019

 

1,621.9

 

309.6

 

340.8

 

188.0

 

2,460.3

Carrying amount as of 1 January 2020

 

1,621.9

 

309.6

 

340.8

 

188.0

 

2,460.3

Additions

 

 

 

 

1.0

 

1.0

Amortisation

 

 

 

(62.5)

 

(37.5)

 

(100.0)

Impairment losses

 

 

 

 

(0.1)

 

(0.1)

Effect of movements in exchange rates

 

(55.2)

 

1.5

 

(15.4)

 

0.7

 

(68.4)

Carrying amount as of 31 December 2020

 

1,566.7

 

311.1

 

262.9

 

152.1

 

2,292.8

The acquisition of Visy Cartons in 2019 resulted in an increase of goodwill and customer relationships. See further note 27.

Research and development

Research and development costs (excluding depreciation and amortisation expense) are recognised as a component of general and administrative expenses, totalling €50.9 million for the year ended 31 December 2020 and €51.7 million for the year ended 31 December 2019.

Amortisation of intangible assets

Amortisation of intangible assets is recognised in the following components in the statement of profit or loss and other comprehensive income.

(In € million)

 

Year ended
31 Dec. 2020

 

Year ended
31 Dec. 2019

Cost of sales

 

62.6

 

63.9

General and administrative expenses

 

37.4

 

36.0

Total amortisation

 

100.0

 

99.9

Annual impairment tests of goodwill and trademarks with indefinite useful lives

Goodwill with a carrying amount of €1,566.7 million as of 31 December 2020 (€1,621.9 million as of 31 December 2019) and trademarks with indefinite useful lives with a carrying amount of €311.1 million as of 31 December 2020 (€309.6 million as of 31 December 2019) are not subject to amortisation but tested for impairment on an annual basis and whenever there is an impairment indicator. The annual impairment tests are performed in the fourth quarter each year.

The Group does not monitor goodwill at a lower level than Group level for internal management purposes but goodwill must for impairment testing purposes be allocated to a cash generating unit (“CGU”), or group of CGUs, that is not larger than an operating segment before aggregation. The Group has allocated the goodwill for impairment testing purposes to its three operating segments (EMEA, APAC and Americas).

Goodwill

For the impairment test of goodwill, the recoverable amount has been estimated with reference to value in use. In assessing the value in use, the estimated future cash flows over the next five years have been discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money as well as the risks specific to each segment. The weighted average cost of capital (“WACC”) is used to determine the discount rate. Cash flows for the first five years are based on financial plans approved by management. Cash flows after the five-year internal planning period are extrapolated using terminal growth rates based on the estimated global and regional market growth for companies in the aseptic carton packaging industry. The terminal growth rates used by the Group for impairment testing purposes are conservative and do not exceed the estimated long-term growth rates in the aseptic carton packaging industry.

Goodwill is allocated to the Group’s three operating (and reportable) segments as per the following table. The goodwill that resulted from the acquisition of Visy Cartons in November 2019 is allocated to APAC and was considered as of 31 December 2019. The table also includes information about the key assumptions used in the impairment test.

 

 

Year ended 31 December 2020

 

Year ended 31 December 2019

(In € million or %)

 

Carrying amount

 

Growth rate

 

Pre-tax discount rate

 

Carrying amount

 

Growth rate

 

Pre-tax discount rate

EMEA

 

757.2

 

1.25%

 

6.1%

 

757.2

 

1.25%

 

7.1%

APAC

 

632.7

 

2.5%

 

7.8%

 

657.3

 

2.5%

 

9.0%

Americas

 

176.8

 

2.25%

 

10.8%

 

207.4

 

2.25%

 

12.1%

Total goodwill

 

1,566.7

 

 

 

 

 

1,621.9

 

 

 

 

No impairment of goodwill was identified in either of the periods. Management considers it unlikely that any realistic change in the assumptions used would result in an impairment loss. The estimated recoverable amounts of the goodwill allocated to the segments significantly exceed the respective carrying amounts in both periods. The Group is overall currently not significantly impacted by the COVID-19 pandemic (see notes 4 and 5.4). Management does not believe that the effects of the COVID-19 pandemic will have any significant long-term negative impacts on the Group’s estimated future cash flows. However, there is no assurance that the Group’s experience to date, which has been reflected in the assessment of future cash flows, will be representative of future periods.

Trademarks with indefinite useful lives

The value of the Group’s trademarks with indefinite useful lives is associated with the Group as a whole. Trademarks are tested for impairment at Group level as all SIG entities benefit from the trademarks. The entities are charged a royalty fee for the use of the SIG trademarks. For the impairment test, the recoverable amount has been estimated with reference to value in use. The assessed royalty fees over the next five years have been discounted to their present value using a pre-tax discount rate at Group level of 7.6% (8.8% in the 2019 annual impairment test) and a terminal growth rate at Group level of 2.0% (2.0% in the 2019 annual impairment test). The WACC is used to determine the discount rate. The royalty fees for the first five years are based on financial plans approved by management. Cash flows after the five-year internal planning period are extrapolated using a terminal growth rate based on the estimated global market growth for companies in the aseptic carton packaging industry. The terminal growth rate used by the Group for impairment testing purposes is conservative and does not exceed the estimated long-term growth rates in the aseptic carton packaging industry.

No impairment of trademarks with indefinite useful lives was identified in any of the periods. Management considers it unlikely that any realistic change in the assumptions used would result in an impairment loss.

Accounting policy

Goodwill arising upon business combinations is measured at cost less accumulated impairment losses. With respect to investments in joint ventures accounted for using the equity method, the carrying amount of goodwill is included in the carrying amount of the investment.

The Group’s trademarks are assessed to have indefinite useful lives considering the long history of the SIG brand and its expected future continuous use. They are measured at cost less accumulated impairment losses. Other intangible assets, including customer relationships and technology assets, have finite useful lives and are measured at cost less accumulated amortisation and accumulated impairment losses. Gains and losses on disposals of intangible assets are recognised in profit or loss as part of other income or expenses.

Development expenditure is capitalised only if the expenditure can be measured reliably, the product or process is technologically and commercially feasible, future economic benefits are probable and the Group intends to and has sufficient resources to complete the development and to use or sell the asset. If the capitalisation criteria are not met, development expenditure is recognised in profit or loss as incurred. Due to uncertainties inherent in the development of new products and processes, notably regarding the difficulty of reliably estimating expected future economic benefits, development costs typically do not meet the capitalisation criteria but are recognised as general and administrative expenses as incurred. Expenditure on research activities is recognised in profit or loss as incurred.

Intangible assets with finite useful lives are amortised on a straight-line basis over their estimated useful lives, with amortisation generally recognised in profit or loss. The estimated useful lives of amortisable intangible assets for the current and comparative periods are as follows:

  • Customer relationships 10 years
  • Technology assets (including patented and non-patented
    technology and know-how) 6 to 10 years
  • Other intangible assets (including software) 3 to 6 years

Impairment of goodwill and other intangible assets

Intangible assets with finite useful lives are reviewed regularly and at least annually to identify whether there is an indication of impairment. If an impairment indicator exists, the asset’s recoverable amount is estimated. Goodwill and intangible assets with indefinite useful lives are tested for impairment on an annual basis and whenever there is an indication that they may be impaired. Note 5.5.3 includes further details about the assessment of the recoverable amounts of non-financial assets and recognition of any impairment losses.

Significant judgements and estimates

Significant judgement is involved in the annual impairment testing of goodwill and trademarks with indefinite useful lives. The judgements and assumptions used in estimating the recoverable amount are included above under “Annual impairment tests of goodwill and trademarks with indefinite useful lives”, where the outcome of the annual impairment tests is also described.