11. Intangible Assets

Goodwill and intangible assets

The carrying amounts of goodwill decreased by €181 million compared with the previous year to €585 million (previous year: €766 million).

The year-on-year change is mainly attributable to impairment losses recognized at the Chantecaille cash-generating unit. Goodwill after impairment amounted to €300 million (previous year: €473 million) for the Chantecaille cash-generating unit. The change in goodwill of Chantecaille compared to the previous year is due to the impairment of €157 million and currency effects. Goodwill in the Consumer Business Segment also includes goodwill of €162 million (previous year: €168 million) in the North America cash-generating unit and goodwill of €63 million (previous year: €59 million) attributable to Beiersdorf AG (Switzerland). The change versus the previous year was attributable to currency effects.

Indefinite-lived intangible assets mainly include acquired trademarks from the acquisition of the Coppertone business amounting to €188 million (previous year: €188 million). The trademarks of €188 million (previous year: €188 million) are established in their markets and will continue to be advertised in the future. They therefore represent indefinite-lived intangible assets.

Trademarks and customer relationships identified as part of the acquisition of Chantecaille were classified in their entirety as finite-lived intangible assets and will be amortized over their useful lives. As of the reporting date, the carrying amount was €59 million (previous year: €70 million).

Impairment tests were performed as of December 31, 2023, on the goodwill as well as indefinite-lived intangible assets recognized for all relevant cash-generating units. The indefinite-lived intangible assets relate to the Maestro trademark in China. Forecast cash flows were used to calculate value in use in order to determine the recoverable amount.

The main estimates on which the impairment tests were based included market shares and rates of sales growth, price trends for commodities, gross profit margins, and corresponding discount rates. The detailed planning anticipates moderate sales growth and a typical EBIT margin for the Group. Based on the sales achieved in 2023, the detailed planning for the Chantecaille cash-generating unit predicts significant above-average sales growth, particularly due to the launch of new products and further market penetration, as well as an increasing rise in the EBIT margin due to efficiency improvements and the discontinuation of negative one-off effects in 2023. Estimated future cash flows were based on financial planning with a five-year horizon. Cash flows beyond the planning period were extrapolated using an individual growth rate taking into account external macroeconomic and business-specific factors. Beyond the planning horizon, this growth rate (terminal growth rate) was assumed to be 1.0% (previous year: 1.0%) for North America and Switzerland and 2.5% (previous year: 2.5%) for Chantecaille. This is due to growth in the selective cosmetics market. The weighted pre-tax discount rate used to discount the estimated cash flows was 7.8% for North America (previous year: 6.9%), 5.1% for Switzerland (previous year: 5.0%), and 9.2% for Chantecaille (previous year: 8.3%).

In fiscal year 2023, an impairment loss on goodwill of €157 million (€160 million including currency translation effects) arising from the Chantecaille cash-generating unit was recognized; this amount is attributable to the Consumer Business Segment. The carrying amount of the Chantecaille cash-generating unit amounted to €608 million at that time. The need to recognize an impairment loss arises primarily from the unfavorable trend in the capital charge and a change in assumptions in the financial planning of the Chantecaille cash-generating unit. The change in assumptions in the financial planning of the Chantecaille cash-generating unit is derived from the overall market trend in China and the performance of the travel retail business in South Korea, as well as the delayed entry into the Chinese market. The impairment losses were recognized in other operating expenses. Brand rights and customer relationships were subject to regular amortization of €8 million (previous year: €8 million).

In the nie wieder bohren GmbH cash-generating unit, the declining, but still positive, market trend and the resulting subdued cash flow expectations meant that the impairment test gave rise to an impairment loss of €4 million on goodwill. The impairment loss arising from the impairment test was recognized in other operating expenses and is attributable to the tesa Business Segment.

Due to the persistently increased competitive pressure as well as rising procurement prices and the associated poorer expected cash flows in the tesa Twinlock B.V. cash-generating unit, the impairment test showed an impairment of goodwill amounting to €5 million on the assets remaining after the cash price allocation and allocated to the cash-generating unit; the associated goodwill had been written down in full in fiscal year 2022. The impairment loss required to be recognized was allocated to the assets on the basis of their relative fair values. The impairment is attributable to the tesa Business Unit and recognized under other operating expenses.

The impairment tests for the other cash-generating units did not reveal any need for impairment of goodwill or trademarks in the reporting year.

The 2023 fiscal year was affected by high inflation, especially in the first half of the year, and this eroded the purchasing power of private households and caused the central banks to raise key interest rates sharply. A slight recovery was, however, noticeable in the course of the year. The supply-side bottlenecks increasingly lost significance, but persistently high energy prices, as well as the conflicts in Ukraine and the Middle East had an adverse effect on the global economy. With regard to the global economy, we are affected in particular by the subdued economic performance in China, which had an unfavorable impact, especially on the travel retail business. For fiscal year 2024, we are still anticipating a decline in the global economy, with a slow recovery toward the middle of the year, which will have a positive influence on interest rates and therefore also on consumer spending. The effects described above and the associated uncertainties were examined for the impairment tests as part of a sensitivity analysis. For the impairment tests, sensitivity analysis was used to examine the effect of the above developments. If we increased the weighted cost of capital by 1% in isolation, the impairment loss required to be recognized on the Chantecaille cash-generating unit would rise by €62 million. If only the long-term growth rate was reduced by 1%, the impairment loss required to be recognized would be €49 million higher. If only the 1% reduction in the long-term EBIT return was considered, the impairment loss required to be recognized would increase by €15 million. A 1% decline in the medium-term growth rate would lead to a €16 million increase in the impairment loss required to be recognized. For all other cash-generating units, the Group assumes that the recoverable amount will exceed the carrying amount of the goodwill, even in the event of reasonably possible changes in the key assumptions used in impairment testing.