THE NATURE OF OUR BUSINESS – STABLE GROWTH - Symrise

Acquisitions of businesses amounting to € 122.4 million result
from the acquisition of the flavor business from Chr. Hansen and
of the fragrance businesses from Intercontinental Fragrances and
Manheimer Fragrances.
The amortization of recipes is allocated to production and is therefore
included in the cost of sales. The amortization of other intangible
assets is allocated to the respective functional areas included
in the income statement.
8.11. Impairment Testing of Goodwill, Recipes and Trademarks
with Indefinite Useful Lives
Goodwill arising through business combinations has been allocated
to the following two cash-generating units, which are tested
for impairment:
› Flavor & Nutrition
› Scent & Care
The recoverable amount of a business division is determined based
on the value in use as at September 30, 2008. Cash flow projections
are based on the Group’s three year financial planning. A net
tax discounting factor of 8.0% (prior year: 7.6%) was used to discount
cash flow projections.
The carrying amount of goodwill as at September 30, 2008
amounted to € 309.3 million in the Flavor & Nutrition division and
€ 156.1 million in the Scent & Care division. As compared to the
balance sheet reporting date as at December 31, 2008, the estimated
goodwill recognized for the Manheimer acquisition was then
some € 10.6 million ($ 15.0 million) higher. Within the context of
a purchase price reduction made in December 2008, a correspondingly
lower goodwill was derived at the balance sheet reporting
date.
As in the previous year, the total amount (€ 62.1 million) relating to
recipes with indefinite useful lives has been allocated to the Scent
& Care division. In this case, an impairment test was also carried
out as of September 30, 2008, at the level of the cash-generating
unit with the result that no impairment requirement was identified.
Trademarks with indefinite useful lives were also tested for impairment
as at September 30, 2008. No impairment was identified.
An impairment loss of € 35.7 million was recognized in 2003 with
respect to goodwill attributed to the Scent & Care division. The impairment
related to the former Aroma Chemicals business sector.
Key assumptions used in determining the
recoverable amount
The Group determined the value in use as the recoverable amount.
The key assumptions are described below which provided the basis
for management’s cash flow projections used in making the impairment
tests for goodwill, recipes and trademarks.
The value in use was calculated using the discounted cash flow
(DCF) method under which free cash flows are discounted using
the weighted average cost of capital (WACC).
The Group has calculated the cash flows of the individual divisions
during the period from 2008 to 2011 based on varying growth
rates. For 2009, the data used was based on the detailed budget
data for 2009, whereas for the years 2010 and 2011 a constant
growth rate of 4.5% was used for the Flavor & Nutrition division
and a constant growth rate of 3.5% was used for the Scent & Care
division. An overall growth rate of 0.5% was assumed for the year
2012.
The WACC comprises a risk-free interest rate of 4.8%, which is derived
from the interest rate on German federal government bonds,
and a market risk premium of 5.0%. The unlevered beta factor is
0.75 and the levered beta factor is 0.9. The estimated cost of equity
is 9.3% and the cost of debt is 6.3%.
The ICF and Manheimer acquisitions (see note 8.13) were included
in the impairment test as at September 30, 2008.
Applying the assumptions described above, the impairment test
carried out as at September 30, 2008, confirmed that there was
no impairment of either goodwill or recipes. The recoverable
amount was higher than the respective carrying amounts in both
business divisions.
126 Annual Report 2008 Symrise AG