Chapters
Annual Report 2019

14. Other Intangible Assets

Accounting Policy

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

Key money

Accounting policy applied until 31 December 2018

Key money represents expenditure associated with acquiring existing operating lease agreements for stores in countries where there is an active market for key money (e.g. regularly published transaction prices) and are included in Other intangible assets. Key money is not amortized but annually tested for impairment.

Accounting policy applied from 1 January 2019

As a result of IFRS 16 Leases implementation, key money is recognized as a part of right-of-use assets and goodwill. For more details refer to note 12 and 13, respectively.

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, rights to open new optical stores, reacquired rights, 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 in the next 21-29 years. 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.

Rights to open new optical stores acquired in a business combination is an identifiable intangible asset that the acquirer recognizes separately from goodwill. These rights to open new locations 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 contractual period without considering contractual extension possibilities, but not exceeding 10 years.

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

Key money

Customer databases

Trademarks

Software

Other

Total

At 1 January 2018

Cost

220,527

170,251

292,449

230,277

54,523

968,027

Accumulated amortization and impairment

- 9,002

- 25,803

- 167,507

- 138,061

- 38,783

- 379,156

Carrying amount

211,525

144,448

124,942

92,216

15,740

588,871

Movements in 2018

Acquisitions

4,024

-

-

2

3,715

7,741

Additions

3,814

658

-

43,737

81

48,290

Disposals

- 1,201

- 3

-

- 252

-

- 1,456

Amortization charge

7

-

- 18,557

- 15,580

- 27,002

- 5,330

- 66,469

Impairment

7

- 4,739

-

- 5,538

- 5,534

-

- 15,811

Reclassification

-

-

- 232

280

195

243

Exchange differences

- 479

2,035

551

- 166

- 83

1,858

At 31 December 2018

212,944

128,581

104,143

103,281

14,318

563,267

Cost

224,770

173,057

291,547

261,011

44,575

994,960

Accumulated amortization and impairment

- 11,826

- 44,476

- 187,404

- 157,730

- 30,257

- 431,693

Adjustment on initial application of IFRS 16

- 212,944

-

-

-

-

- 212,944

Adjusted at 1 January 2019

-

128,581

104,143

103,281

14,318

350,323

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

4

-

14,589

21,111

624

54,847

91,171

Additions

-

487

-

56,905

27

57,419

Disposals

-

-

-

- 533

- 104

- 637

Amortization charge

7

-

- 18,340

- 11,042

- 33,485

- 8,074

- 70,941

Impairment

7

-

-

-

- 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

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

Customer databases and trademarks

In 2019, the increase related mainly to the acquisitions of McOptic and Óptica2000 (in Other Europe segment). Refer to note 4 for more details.

Software

In 2019 and 2018, the 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

At 31 December 2019 €43,846 recognized in other intangible assets related to the concession agreement, recognized following acquisition of Óptica2000 during 2019 in Spain (see note 4) and €5,796 (2018: €8,389) related to the Group's right to open additional optical stores in the Tesco.