Chapters
Annual Report 2020

14. Other Intangible Assets

Accounting Policy

Other intangible assets contain customer databases, trademarks, software and others.

Customer databases

Customer databases are only recognized as an intangible asset if the Group has a practice of establishing relationships with its customers and when the Group is able to sell or transfer the customer database to a third party. The customer databases are initially recognized at fair value using the discounted cash flow method or multi-period excess earnings method for the acquisitions. The fair value is subsequently regarded as cost. Customer databases have a finite useful life and are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method over the estimated useful life but no longer than 15 years.

Trademarks

Trademarks acquired in business combinations are initially recognized at fair value using the relief-from-royalty approach. The fair value is subsequently regarded as cost. Trademarks have a finite useful life and are carried at cost less accumulated amortization. Amortization is calculated, using the straight-line method over the estimated useful life but not longer than 15 years (with exceptions of certain older trademarks).

Software

Acquired software is capitalized based on the costs incurred to acquire and to bring to use the specific software. Software is amortized when the product is put in operation, using the straight-line method, based on an estimated useful life in range of 3-5 years.

Costs incurred on development projects (i.e. internally developed software) are recognized as an intangible asset when the following criteria are met:

  • It is technically feasible to complete the product so that it will be available for use;
  • Management intends to complete the product and use it;
  • The product can be used;
  • It can be demonstrated how the product will generate probable future economic benefits;
  • Adequate technical, financial and other resources to complete development and use the product are available;
  • The expenditure attributable to the software product during its development can be reliably measured.

The expenditure that is capitalized includes purchases and the directly attributable employee costs. Development costs previously recognized as an expense, are not recognized as an asset in a subsequent period.

Other

Other intangible assets are mainly related to a concession agreement, reacquired rights, and franchise contracts.

The concession agreement is an identifiable intangible asset that the acquirer recognizes separately from goodwill. It relates mainly to the rights to operate optical stores in the El Corte Ingles department stores until years 2040 - 2048. These rights are initially valued at fair value, being the present value of the estimated future cash flows, which is subsequently used as cost and amortized on a straight-line basis over the duration of the concession agreement.

A reacquired right is an identifiable intangible asset that the acquirer recognizes separately from goodwill. As part of a business combination, an acquirer may acquire a right that it had previously granted to the acquiree to use one or more of the acquirer’s recognized or unrecognized assets. An example of such rights includes a right to use the acquirer’s trade name under a franchise agreement. Reacquired rights are initially valued at the present value of the expected future cash flows, which is subsequently used as cost and amortized on a straight-line basis over its useful life, being the remaining contractual period without considering contractual extension possibilities, but not exceeding 10 years. 

Franchise contracts acquired in a business combination are initially valued at fair value, being the present value of the estimated future cash flows, which is subsequently used as cost and amortized on a straight line basis over its useful life, being the remaining duration of the franchise contract without considering contractual extension possibilities, but not exceeding 10 years.

Movements in Other Intangible Assets are as follows:

in thousands of EUR

Notes

Customer databases

Trademarks

Software

Other

Total

At 1 January 2019

Cost

173,057

291,547

261,011

44,575

770,190

Accumulated amortization and impairment

- 44,476

- 187,404

- 157,730

- 30,257

- 419,867

Carrying amount

128,581

104,143

103,281

14,318

350,323

Movements in 2019

Acquisitions

14,589

21,111

624

54,847

91,171

Additions

487

-

56,905

27

57,419

Disposals

-

-

- 533

- 104

- 637

Amortization charge

6

- 18,340

- 11,042

- 33,485

- 8,074

- 70,941

Impairment

6

-

-

- 21,193

-

- 21,193

Reclassification

- 5

- 20

355

- 9

321

Exchange differences

5,014

2,493

1,106

45

8,658

At 31 December 2019

130,326

116,685

107,060

61,050

415,121

At 1 January 2020

Cost

194,806

317,408

312,721

100,353

925,288

Accumulated amortization and impairment

- 64,480

- 200,723

- 205,661

- 39,303

- 510,167

Carrying amount

130,326

116,685

107,060

61,050

415,121

Movements in 2020

Acquisitions

266

-

-

1,397

1,663

Additions

114

-

44,285

302

44,701

Disposals

-

-

- 251

-

- 251

Amortization charge

6

- 17,878

- 11,389

- 33,641

- 7,606

- 70,514

Impairment

6

- 29,564

- 323

- 4,118

- 34,005

Reclassification

-

-

167

-

167

Exchange differences

- 2,486

- 2,605

- 1,771

- 292

- 7,154

At 31 December 2020

80,778

102,691

115,526

50,733

349,728

Cost

188,952

307,213

344,009

99,729

939,903

Accumulated amortization and impairment

- 108,174

- 204,522

- 228,483

- 48,996

- 590,175

Carrying amount

80,778

102,691

115,526

50,733

349,728

Customer database and trademarks

In 2019, the increase in customer database and trademarks related mainly to the acquisitions of McOptic and Óptica2000 (in Other Europe segment).

In 2020, the customer databases related to Tesco (UK, part of G4 segment), ForEyes (US, part of Americas & Asia segment), and the Randazzo acquisition (Italy, part of Other Europe segment) were (partially) impaired following the historically lower performance of the stores in these chains, compared to the expectations at their acquisitions. The majority of the customer database impairment relates to the Tesco customer database.

Impairment Test of Tesco customer database
The customer database relating to Tesco stores acquired in 2017 in the UK is amortized over 14 years. It has a carrying amount of €23,700 at the end of reporting period, after impairment of €20,548. The recoverable amount for the impairment test purposes was determined based on a fair value less costs of disposal model (level 3). The model includes discounted cash inflows based on future revenue from customers ‘acquired’ as part of the transfer of the Tesco Opticians database, together with the costs incurred in meeting that demand. The projections cover a twelve-year period (remaining useful life of the customer database). Key assumptions used are as follows: (a) expected revenue growth of 2%; (b) a churn rate; (c) post-tax discount rate of 5.7%.

The most sensitive key assumption in the impairment test of the Tesco customer database relates to revenue growth rate. A reduction of the expected revenue growth to the level of 1%, with all other factors used in calculating the fair value less costs of disposal remaining unchanged, would lead to an additional impairment of €4.0 million. In light of the significant impact of the COVID-19 pandemic on the economic outlook and business forecasts, the impact of Brexit has remained immaterially low. For more details on the (expected) implications of Brexit on the operations refer to note 13.

Software

During 2020, GrandVision continued its investment program on its strategic initiatives. Additions mainly related to the development of the omnichannel capabilities and other investments in IT.

In 2019, software was impaired mainly at the corporate level following changes in the strategy related to the implementation of global e-commerce platforms and ERP system.

Other

The other intangible assets mainly comprise the concession agreement, recognized following acquisition of Óptica2000 during 2019 in Spain of €42,032 (2019: €43,846).