8 GoodwilI and intangible assets

The amortization and impairment losses of goodwill and intangible assets are included in Cost of sales, Marketing & Sales, Research & Development and General & Administrative expenses.

Where dsm-firmenich acquired entities in business combinations in the past, they were accounted for by the acquisition method, resulting in recognition of mainly goodwill, customer- and marketing-related, and technology-based intangible assets. The amounts assigned to the acquired assets and liabilities are based on assumptions and estimates about their fair values. In making these estimates, management consults independent, qualified appraisers where appropriate.

The merger of equals between DSM and Firmenich, which is accounted for as a business combination under IFRS 3, resulted in the recognition of a significant amount of additional intangible assets. More specifically, the main intangible assets provisionally recognized as result of the merger are customer relationships for €3,407 million, technology for €1,044 million, and trademarks for €648 million. Furthermore, an amount of €8,251 million was recognized as goodwill.

Other significant intangibles were mainly obtained during the acquisitions of Erber Group and Glycom in 2020, and F&F Amyris and First Choice Ingredients in 2021. Intangible assets are amortized on a straight-line basis and subject to impairment trigger testing. There are no intangible assets with an indefinite useful life (same as in 2022).

The carrying amount of the internally generated intangible assets includes €133 million (2022: €143 million) that relates mainly to strategic projects which are not being amortized yet. The recoverable amount of these projects was estimated based on the present value of the future cash flows expected to be derived from the projects (value-in-use).

Goodwill

The CGUs dsm-firmenich identified in 2023 were Perfumery & Beauty (P&B), Taste, Texture & Health (TTH), Health, Nutrition & Care (HNC), and Animal Nutrition & Health (ANH).

The annual impairment tests of goodwill are performed in the fourth quarter. The recoverable amount of the CGUs is based on a value-in-use calculation.

The cash flow projections are derived from dsm-firmenich’s business plan as adopted by the Board and updated periodically – for example when the strategy is updated. More specifically, the cash flow projections are based on the budget for 2024, as approved by management, which is extrapolated throughout the remainder of the forecast period using management’s internal forecasts. The key assumptions in the cash flow projections relate to the market growth for the CGUs and the related revenue projections, EBITDA developments, and the rates used for discounting cash flows. For the CGUs P&B, HNC and ANH, which are considered mature businesses, a forecast period of five years is applied before they come to a terminal value. For TTH, an initial forecast period of ten years was applied, reflecting the extended period of time during which the identified synergies arising from the merger are expected to contribute to the growth of this CGU. The terminal value growth rate is determined with the assumption of inflationary growth.

For ANH and HNC, the growth assumptions are based on the growth of the global food and feed markets, for TTH on the growth assumptions of the global food and beverage markets, and the vitamin transformation program; and for P&B on the growth assumptions of the global fragrances and personal care markets. A sensitivity test was performed on the impairment tests of the CGUs and showed that the conclusions of these tests would not have been different if a reasonable possible adverse change in key parameters had been assumed.

Based on the sensitivity tests performed on the impairment test of the CGUs P&B and TTH, it was identified that a reasonably possible adverse change in the pre-tax discount rate could cause the carrying amount of these CGUs to exceed their recoverable amount. Holding all other factors constant, increases of, respectively, 127 basis points and 156 basis points in the pre-tax discount rates of P&B and TTH would result in recoverable amounts equal to the carrying amounts of these CGUS. The headroom of P&B and TTH amounted to €1,794 million and €2,032 million, respectively. The remainder of the sensitivity tests performed indicate that the conclusions of the impairment test of the CGUs would not have been different if a reasonably adverse change in any other key parameter had been assumed.