15 - Intangible assets and goodwill

Accounting policies

Goodwill

Goodwill, arising from business combinations, is categorized as an intangible asset. Goodwill is not amortized but is tested annually for impairment—and more frequently, if events or changes in circumstances indicate potential impairment. It is carried at cost, minus any accumulated impairment losses. Any gains and losses on the disposal of an entity include the carrying amount of goodwill that pertains to the entity sold.

Goodwill is allocated to CGUs for impairment testing. This allocation covers CGUs—or groups of CGUs—that are likely to benefit from the business combination that gave rise to the goodwill. The Group identifies these units, or groups of units, at the lowest level where goodwill is internally monitored for management purposes

The Group tests goodwill and other applicable assets for impairment annually in December, or whenever management identifies conditions that may indicate a risk of impairment. This is done by comparing the asset’s recoverable amount with its carrying amount. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount and is recognized immediately in the statement of profit or loss. The recoverable amount is the higher of an asset’s fair value less costs of disposal and its value in use. In estimating the recoverable amount, management is required to make an estimate of the expected future cash flows from the CGU in the forecast period and also to determine a suitable discount rate in order to calculate the present value of those cash flows. Such estimates are subject to a certain degree of judgement and uncertainty.

Impairments to goodwill are not subsequently reversed.

Other intangibles

Other intangible assets other than internally generated assets, including software and licenses, are measured at cost on initial recognition. Following initial recognition, other intangible assets are carried at cost less accumulated amortization and accumulated impairment losses, if any. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is recognized in the statement of profit or loss when incurred.

Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognized as intangible assets when the following criteria are met:

• it is technically feasible to complete the software product so that it will be available for use;

• management intends to complete the software product and use or sell it;

• there is an ability to use or sell the software product;

• it can be demonstrated how the software product will generate probable future economic benefits;

• adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and

• the expenditure attributable to the software product during its development can be reliably measured.

Other intangible assets are amortized over their useful economic lives and assessed for impairment annually or whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset are reviewed at least at the end of each reporting period.

The Group's intangible assets have the following estimated useful lives (depending on level of acquisition in Group structure):

Impairment of intangibles

The Group assesses whether there is an indication that an asset may be impaired at each reporting date. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount.

An asset’s recoverable amount is the higher of an assets or CGU’s fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.

In assessing value in use, the estimated future pre-tax cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators.

The Group bases its impairment calculation on the most recent budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. A long-term growth rate is calculated and applied to project future cash flows after the fifth year.

A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of profit or loss unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase.

The table below summarizes the movement in Intangible assets (In € 1,000):

The impairment recognized 2023 is related to the capitalized costs of the implementation of an ERP application and the decision to partially re-implement it. This impairment takes into account a possible reuse.

Impairment

The monitors its goodwill at the business unit (“BU”) level (i.e. cash flow generating units). These units include Building Projects, Building Services, and Specialties. A detailed overview of the carrying value of goodwill per BU is provided below.

The carrying amount of goodwill allocated to the business unit is as follows:

Key assumptions

For impairment calculations, the Group prepares individual forecast calculations for each business unit. These forecasts usually cover a period of five years, after which a long-term growth rate is applied to project future cash flows.

Discount rates

The Group calculates its discount rate based on the 30-year risk-free rate for Dutch government bonds, and then adjusting it with a risk premium. This premium reflects the additional risk associated with equity investments and the systematic risk of the Group relative to the market as a whole.

The equity market risk premium is obtained from independent market analysis. Moreover, the systematic risk, represented by beta, mirrors the relative risk of the Group's active sectors compared to the overall market. This is based on median values sourced independently from firms such as Duff & Phelps and Damodaran. The Group also considers a smallness premium and industry-specific risks.

The debt risk premium is based on a mark-up on the Group's external financing. The weighted average cost of capital is determined using a debt-to-equity ratio typical for the industry. As of December 31, 2023, the calculated discount rate stands at 9.4%.

Revenue growth rates

The forecasted revenue growth rates for the Group depend on multiple factors, such as market size. The Group estimates a long-term growth rate into perpetuity, which is either lower or equal to the projected long-term inflation for the Netherlands.

The Group conducts a sensitivity analysis and concludes that a reasonable possible change, whether individual or in combination, does not lead to impairment. In doing so, the WACC and terminal growth rate are assumed to be +1% and -1%.