Balance Sheet Disclosures

21. INTANGIBLE ASSETS

Change in Intangible Assets
in million €Concessions, favourable contracts, industrial property rights and similar rights as well as licenses to such rightsCustomer relationshipsGoodwillPrepayments and assets under developmentTotal
Cost  
As at 1 Jan. 2017823.510.11,881.532.62,747.7
Currency translation-0.90.12.20.01.4
Additions to/disposals from scope of consolidation5.50.0-7.60.0-2.1
Reclassifications of assets held for sale59.30.024.50.083.8
Additions from acquisitions33.054.770.60.0158.3
Additions67.80.01.735.2104.7
Disposals-18.40.0-0.5-1.5-20.4
Reclassifications24.60.00.0-21.72.9
As at 31 Dec. 2017/1 Jan. 2018994.464.91,972.444.63,076.3
Currency Translation-2.3-0.1-8.4-0.1-10.9
Additions to/disposals from scope of consolidation23.40.00.00.023.4
Additions from acquisitions22.50.0124.50.0147.0
Additions102.30.05.127.6135.0
Disposals-17.80.0-1.7-0.5-20.0
Reclassifications31.90.00.0-28.43.5
As at 31 Dec. 20181,154.464.82,091.943.23,354.3
Depreciation, amortisation and impairments  
As at 1 Jan. 2017518.83.1537.70.31,059.9
Currency translation0.80.20.00.01.0
Additions to/disposals from scope of consolidation0.00.0-7.60.0-7.6
Reclassifications of assets held for sale59.30.024.50.083.8
Additions73.91.80.00.075.7
Disposals-11.60.00.00.0-11.6
As at 31 Dec. 2017/1 Jan. 2018641.25.1554.60.31,201.2
Currency Translation-1.10.00.00.0-1.1
Additions90.86.20.00.097.0
Impairments10.00.010.40.020.4
Disposals-15.60.00.00.0-15.6
Reversals of impairment losses-0.80.00.00.0-0.8
As at 31 Dec. 2018724.511.3565.00.31,301.1
Carrying amount as at 1 Jan. 2017304.77.01,343.832.31,687.8
Carrying amount as at 31 Dec. 2017/1 Jan. 2018353.259.81,417.844.31,875.1
Carrying amount as at 31 Dec. 2018429.953.51,526.942.92,053.2

Favourable contracts were recognised as intangible assets if contracts were taken over in connection with a business combination whose terms and conditions were more favourable than the market conditions at the date of the business combination.

The increase in goodwill is due to the first-time consolidations in 2018 (see note 4 "Acquisitions"). This was attributable primarily to the goodwill for UAB Palink and Travel LAB SAS, Saint-Ouen, France.

Internally generated intangible assets in use amounting to 77.8 million euros are presented in the financial year (previous year: 89.7 million euros). In addition, there are internally generated intangible assets still in development. The internally generated intangible assets primarily concern software products. Additional research and development expenses of 64.4 million euros (previous year: 70.4 million euros) were incurred in the financial year. These expenses were not capitalised as internally generated intangible assets because the recognition requirements were not satisfied.

The cumulative cost and/or cumulative depreciation was reclassified if it was attributable to assets that were recognised under other items of non-current assets and that must now be presented in other items.

With regard to the impairment losses during the financial year, please see the remarks under note 13 "Depreciation, Amortisation and Impairments".

Intangible assets amounting to 0.1 million euros (previous year: 0.0 million euros) were pledged as collateral for liabilities. In addition, purchase commitments in the amount of 0.1 million euros (previous year: 0.3 million euros) were entered into for intangible assets.

Goodwill

Breakdown of Goodwill by CGU Groups
Group of cash-generating units
  in million €
31 Dec. 201831 Dec. 2017
REWE679.4677.0
Travel and Tourism Central Europe348.9344.2
PENNY Czech Republic196.8198.7
IKI Baltic states97.70.0
Travel and Tourism Northern Europe87.465.0
BILLA Czech Republic54.454.9
BILLA Russia47.254.1
EHA7.17.1
Digital7.07.0
DIY Stores1.11.0
PENNY Italy0.08.8
Total goodwill1,527.01,417.8

The 2.4-million-euro increase in goodwill of the REWE group of CGUs is due to the additions to REWE Regiemarkt's customer base at individual stores.

The 4.7-million-euro increase in goodwill of the Travel and Tourism Central Europe group of CGUs is attributable primarily to advantageous exchange rate developments in the KUONI Switzerland business unit as well as from the acquisition of all shares in Reisebüro Rade GmbH, Offenburg (see also note 4 "Acquisitions").

At the PENNY Czech Republic group of CGUs, the unfavourable exchange rate changes resulted in a decline in goodwill of 1.9 million euros.

At the new IKI Baltic states group of CGUs, the addition of UAB Palink resulted in goodwill of 97.7 million euros (see also note 4 "Acquisitions").

At the Travel and Tourism Northern Europe group of CGUs, the acquisition of three business units (see also note 4 "Acquisitions") primarily led to an increase in goodwill of 22.4 million euros.

The advantageous exchange rate development from the previous year for the BILLA Czech Republic group of CGUs reversed during the financial year, resulting in a decrease in goodwill amounting to 0.5 million euros. The negative exchange rate development from the previous year for the BILLA Russia group of CGUs continued during the financial year, resulting in a decrease in goodwill amounting to 6.9 million euros.

The slight increase in goodwill at the DIY Stores group of CGUs in the financial year is attributable to the acquisition of a further store location.

At the PENNY Italy group of CGUs, the addition during the year resulting from an asset deal amounted to 1.6 million euros. In addition, the annual impairment test identified a recoverable amount that resulted in an impairment of the entire amount of goodwill attributed to this CGU of 10.4 million euros (see also note 13, "Depreciation, Amortisation and Impairments").

Measurement Model and Material Measurement Parameters

The recoverable amount of the CGU groups is determined based on the fair value less costs to sell using the discounted cash flow method, based on level 3 inputs.

The key measurement parameters used to calculate the fair value of CGUs are the capital charges (WACC) used to calculate the discount rate, the growth discount in the discount rate used for calculating the perpetual annuity and the change in EBIT in the planning period as the basis for forecasting the cash flows of the CGUs.

The measurement of the fair value of the CGU groups is based on the forecasted cash flows, which are derived on the basis of the three-year plan approved by the management. This three-year plan was prepared on the basis of internal Company experience and expectations regarding future market development and is used for internal purposes. Country-specific parameters, such as economic growth, consumer prices, private consumption and the unemployment rate, are considered in the three-year plan. The last planning year in the three-year plan is generally used as a basis for the perpetual annuity in the measurement model.

A growth discount is factored into the discount rate for the perpetual annuity in the measurement model. Growth rates forecast by international organisations for gross domestic product up to 2023 were used when determining the country-specific growth discounts. The discount rates used reflect the special risks of the corresponding CGU groups. Capital charges (WACC) are determined based on fair values. The specific beta coefficients were derived from capital market data for several comparable companies.

Comparison of Discount Rates and Growth Discounts
Group of cash-generating unitsDiscount rate per year (WACC)Growth discount
20182017  2018  2017
REWE4.8%4.8%0.5%0.5%
Travel and Tourism Central Europe5.6%5.8%0.4%0.5%
PENNY Czech Republic6.3%5.5%1.3%0.8%
Travel and Tourism Northern Europe6.1%6.4%0.8%0.8%
BILLA Czech Republic6.3%5.5%1.3%0.8%
BILLA Russia11.3%11.5%2.5%2.5%
EHA4.8%4.8%0.5%0.5%
Digital4.8%4.8%0.5%0.5%
DIY Stores4.8%0.5%
PENNY Italy6.8%0.5%

Impairment tests were conducted in euros for the Travel and Tourism Central Europe and Travel and Tourism Northern Europe groups of CGUs and average discount and growth rates were used; the average of the country-specific parameters was calculated based on revenue ratios.

The three-year plans for internal management purposes are used for the forecast of future cash flows of the CGU groups. The detailed planning period was expanded for some CGU groups. This is done if the most recent budget year does not reflect long term results as a basis for the perpetual annuity. This is primarily due to restructuring and expansion plans in the CGU groups.

The following assumptions were made in the detailed planning period with respect to the future development of EBIT and revenue for the individual CGU groups:

Trend Indications for the Development of EBIT and Revenue
Group of cash-generating unitsForecast development
EBIT/Revenue
Detailed planning period
EBITRevenue20182017
REWEsolid growthslight growth3 and 10 years10 years
Travel and Tourism Central Europestrong growthslight growth3 years3 years
PENNY Czech Republicslight growthslight growth3 years3 years
Travel and Tourism Northern Europesolid growthslight growth3 years3 years
BILLA Czech Republicsolid growthslight growth3 years3 years
BILLA Russiastrong growthstrong growth3 years3 years
EHAsolid growthslight growth3 years3 years
Digitalstrong growthstrong growth10 years10 years
DIY Storesstrong growthstable10 years
PENNY Italystrong growthslight growth3 years

Sensitivity of Material Measurement Parameters

As part of sensitivity analyses, the potential effects from changes in the weighted cost of capital (WACC), country-specific growth discounts or in the EBIT for the last planning year are analysed, as are combinations of these significant measurement parameters to future cash flows.

At the following CGU groups, the sensitivity analyses showed the potential impairments of goodwill in the event of changes in parameters presented in the table below:

Potential Impairment Risk with a Change to a Significant Parameter
Potential Impairment Risk with an Increase in the WACC
 WACCImpairments
Group of cash-generating unitsIncrease in percentage pointsin million €
PENNY Italy1.0239.1
REWE1.00.0
DIY Stores1.011.9
Potential Impairment Risk with a Decrease in EBIT
 EBIT perpetual annuityImpairments
Group of cash-generating unitsDecrease in percentage pointsin million €
PENNY Italy10.0237.9
REWE10.00.0
DIY Stores10.00.0
Potential Impairment Risk with a Decrease in the Growth Discount
 Growth discountImpairments
Group of cash-generating unitsDecrease in percentage pointsin million €
PENNY Italy0.5237.5
REWE0.50.0
DIY Stores0.50.0
Potential Impairment Risk with a Change to Two Significant Parameters
Potential Impairment Risk with a Simultaneous Change to WACC and the Growth Discount
 WACCGrowth discountImpairments
Group of cash-generating unitsIncrease in percentage pointsDecrease in percentage points in million €
PENNY Italy1.00.5240.3
REWE1.00.50.0
DIY Stores1.00.546.6
Potential Impairment Risk with a Simultaneous Change to WACC and EBIT
 WACCEBIT perpetual annuityImpairments
Group of cash-generating unitsIncrease in percentage pointsDecrease in percentage points in million €
PENNY Italy1.010.0240.8
REWE1.010.00.0
DIY Stores1.010.070.6
Potential Impairment Risk with a Simultaneous Change to EBIT and the Growth Discount
 EBIT perpetual annuityGrowth discountImpairments
Group of cash-generating unitsDecrease in percentage pointsDecrease in percentage points in million €
PENNY Italy10.00.5239.4
REWE10.00.50.0
DIY Stores10.00.50.0

No realistic changes in parameters are expected for any of the CGU groups which would result in an impairment.