Note 21 – Intangible assets
Accounting principles
Goodwill
Goodwill comprises the amount by which the acquisition value exceeds the fair value of the Group’s share of the identifiable net assets of acquired subsidiaries at the time of acquisition. Goodwill on acquisition of subsidiaries is recognized as intangible assets. Goodwill is reviewed annually to identify any impairment and recognized at acquisition value less accumulated impairment losses. Impairment testing is conducted to ascertain whether the recoverable amount, i.e. the higher of net realizable value or value in use, exceeds the carrying amount. The asset’s value is written down to the recoverable amount as soon as it is shown that it is lower than the carrying amount. Impairment of goodwill is not reversed. Gains or losses upon the divestment of a unit include the remaining carrying amount of the goodwill which relates to the divested unit.
Detailed information regarding the Group’s definition of cash-generating units upon the allocation of goodwill is provided below.
Customer relationships, trademarks and licenses
Identifiable acquired customer relationships are recognized at fair value and relate to acquisitions made from 2013 onwards. Amortization is charged on a straight-line basis over the useful life, which is estimated to be 10 years.
Acquired trademarks and licenses are recognized at acquisition value. Trademarks and licenses have a determinable useful life and are recognized at acquisition value less accumulated amortization. Trademarks and licenses are amortized on a straight-line basis in order to allocate their cost over their estimated useful life (3-10 years).
Research and development
Capitalized research expenses relate primarily to expenditure for the implementation of the SAP ERP system.
Research expenses are recognized when incurred.
Expenditure incurred in development projects (relating to design and testing of new or improved products) are recognized as intangible assets when the following criteria are fulfilled:
- it is technically feasible to finish the intangible asset so that it can be used or sold;
- management intends to finish the intangible asset and use or sell it;
- conditions exist to use or sell the intangible asset;
- the way in which the intangible asset will generate probable future economic benefits can be demonstrated;
- adequate technical, financial and other resources exist to complete the development and to use or sell the intangible asset; and
- the expenditures which relate to the intangible asset during its development can be calculated in a reliable manner.
Other development expenditure which does not fulfill these conditions is recognized as an expense when incurred. Development expenditure previously recognized as an expense is not recognized as an asset in a subsequent period. Capitalized development expenses are recognized as intangible assets and the assets are amortized from the time the asset is ready for use on a straight-line basis over the estimated useful life (3–10 years).
Emission rights
Duni Group participates in the EU’s emission rights trading system. Received emission rights are recognized as intangible assets measured at cost, in other words, initially at SEK zero. Values are not adjusted up. A provision is made if an emission rights deficit is identified between owned rights and the rights which will need to be delivered due to emissions made. The value of any surplus emission rights is recognized only when realized upon an external sale.
Significant judgments and assumptions
Group Management determines the estimated useful life and thereby the amortization of the Group’s intangible assets. These estimates are based on historical knowledge of the useful life of equivalent assets. Useful lives and estimated residual values are reviewed on each balance sheet date and adjusted as required.
Each year, the Group assesses whether there is any impairment of goodwill. The recoverable amount of cash-generating units has been determined by calculating the value in use. Certain estimates must be made for these calculations. The calculations are based on estimated future cash flows before tax, based on financial forecasts approved by company management and which cover the current year as well as a five-year period. Cash flows beyond this period are extrapolated using an estimated growth rate. The growth rate does not exceed the long-term growth rate for the industry as a whole.
Significant assumptions which are used for calculations of values in use are primarily profit margin, growth rate and a nominal discount rate. Which discount rate is used for each business area can be seen in the table below. The discount rate before tax is used in conjunction with present value calculation of estimated future cash flows. Company management has established the profit margin and growth rate based on previous income and its expectations as regards market growth. The discount rates used are stated before tax and reflect specific risks in the business area. Company management believes that the Group’s operations are stable and there are therefore not any individual significant assumptions that could impact the profit margin. The estimated growth rate is applied in all essential respects to net sales and free cash flow. Company management believes that reasonably possible changes in the significant assumptions used in the calculations would not have such a major impact as to individually reduce the recoverable amount to a value which is below the carrying amount.
The calculations of the impairment tests for the fiscal year 2020 and 2021 have taken into account the impact of the COVID-19 pandemic. Management believes that the impact is limited to the duration of the pandemic. As soon as the societal restrictions are lifted and markets open to normal activity, management expects sales to recover to pre-pandemic levels. However, the assessment is that it may take some time to fully recover, which has been taken into account on both the profit margin and the growth rate in the forecast periods.
Goodwill
| Group | Parent Company | |||||
| SEK m | 2021 | 2020 | 2021 | 2020 | ||
| Koncernen | Moderbolaget | |||||
| MSEK | 2021 | 2020 | 2021 | 2020 | ||
| Acquisition values | Anskaffningsvärden | |||||
| Opening acquisition values | Ingående anskaffningsvärden | 2,063 | 2,115 | 2,053 | 2,053 | |
| Increase through business combination | Ökning genom rörelseförvärv | – | – | – | – | |
| Translation differences | Omräkningsdifferenser | 31 | -52 | – | – | |
| Closing accumulated cost | Utgående ackumulerade anskaffningsvärden | 2,095 | 2,063 | 2,053 | 2,053 | |
| Amortization | Avskrivningar | – | ||||
| Opening accumulated amortization | Ingående ackumulerade avskrivningar | – | – | -2,053 | -2,053 | |
| Closing accumulated amortization | Utgående ackumulerade avskrivningar | 0 | 0 | -2,053 | -2,053 | |
| Impairment losses | Nedskrivningar | |||||
| Opening accumulated impairment losses | Ingående ackumulerade nedskrivningar | -53 | -58 | – | – | |
| Impairment losses for the year | Årets nedskrivningar | -27 | – | – | – | |
| Translation differences | Omräkningsdifferenser | -5 | 5 | – | – | |
| Closing accumulated impairment losses | Utgående ackumulerade nedskrivningar | -85 | -53 | 0 | 0 | |
| Closing carrying amount | Utgående bokfört värde | 2,010 | 2,011 | 0 | 0 | |
Customer relations
| Group | Parent Company | |||||
| SEK m | 2021 | 2020 | 2021 | 2020 | ||
| Koncernen | Moderbolaget | |||||
| MSEK | 2021 | 2020 | 2021 | 2020 | ||
| Acquisition values | Anskaffningsvärden | |||||
| Opening acquisition values | Ingående anskaffningsvärden | 476 | 496 | – | – | |
| Increase through business combination | Ökning genom rörelseförvärv | – | – | – | – | |
| Reclassification | Omklassificeringar | 4 | 13 | – | – | |
| Translation differences | Omräkningsdifferenser | 21 | -34 | – | – | |
| Closing accumulated acquisition values | Utgående ackumulerade anskaffningsvärden | 500 | 476 | 0 | 0 | |
| Amortization | Avskrivningar | |||||
| Opening accumulated amortization | Ingående ackumulerade avskrivningar | -241 | -220 | – | – | |
| Amortization for the year | Årets avskrivningar | -49 | -52 | – | – | |
| Reclassification | Omklassificeringar | – | 16 | – | – | |
| Translation differences | Omräkningsdifferenser | -9 | 15 | – | – | |
| Closing accumulated amortization | Utgående ackumulerade avskrivningar | -299 | -241 | 0 | 0 | |
| Impairment losses | Nedskrivningar | |||||
| Opening accumulated impairment losses | Ingående ackumulerade nedskrivningar | – | – | – | – | |
| Impairment losses for the year | Årets nedskrivningar | -6 | – | – | – | |
| Translation differences | Omräkningsdifferenser | 0 | – | – | – | |
| Closing accumulated impairment losses | Utgående ackumulerade nedskrivningar | -7 | 0 | 0 | 0 | |
| Closing carrying amount | Utgående bokfört värde | 195 | 235 | 0 | 0 | |
Capitalized development expenses
| Group | Parent Company | |||||
| SEK m | 2021 | 2020 | 2021 | 2020 | ||
| Koncernen | Moderbolaget | |||||
| MSEK | 2021 | 2020 | 2021 | 2020 | ||
| Acquisition values | Anskaffningsvärden | |||||
| Opening acquisition values | Ingående anskaffningsvärden | 194 | 168 | 161 | 134 | |
| Investments | Investeringar | 1 | 0 | 1 | 0 | |
| Sales and disposals | Försäljningar och utrangeringar | -2 | 0 | -2 | – | |
| Reclassification | Omklassificeringar | 11 | 27 | 11 | 27 | |
| Translation differences | Omräkningsdifferenser | 1 | -1 | – | – | |
| Closing accumulated acquisition values | Utgående ackumulerade anskaffningsvärden | 205 | 194 | 171 | 161 | |
| Amortization | Avskrivningar | |||||
| Opening accumulated amortization | Ingående ackumulerade avskrivningar | -171 | -156 | -152 | -144 | |
| Amortization for the year | Årets avskrivningar | -15 | -16 | -9 | -8 | |
| Increase through divestment | Ökning genom avyttring | 2 | – | – | – | |
| Sales and disposals | Försäljningar och utrangeringar | – | – | 2 | – | |
| Translation differences | Omräkningsdifferenser | -1 | 1 | – | – | |
| Closing accumulated amortization | Utgående ackumulerade avskrivningar | -185 | -171 | -159 | -152 | |
| Closing carrying amount | Utgående bokfört värde | 20 | 23 | 11 | 9 | |
Assets under development
| Group | Parent Company | |||||
| SEK m | 2021 | 2020 | 2021 | 2020 | ||
| Koncernen | Moderbolaget | |||||
| MSEK | 2021 | 2020 | 2021 | 2020 | ||
| Acquisition values | Anskaffningsvärden | |||||
| Opening acquisition values | Ingående anskaffningsvärden | 14 | 34 | 11 | 30 | |
| Investments | Investeringar | 11 | 11 | 10 | 10 | |
| Sales and disposals | Försäljningar och utrangeringar | – | 0 | – | – | |
| Reclassification | Omklassificeringar | -12 | -30 | -11 | -29 | |
| Translation differences | Omräkningsdifferenser | 0 | 0 | – | – | |
| Closing accumulated acquisition values | Utgående ackumulerade anskaffningsvärden | 14 | 14 | 9 | 11 | |
| Closing carrying amount | Utgående bokfört värde | 14 | 14 | 9 | 11 | |
Trademarks, software and licenses
| Group | Parent Company | |||||
| SEK m | 2021 | 2020 | 2021 | 2020 | ||
| Koncernen | Moderbolaget | |||||
| MSEK | 2021 | 2020 | 2021 | 2020 | ||
| Acquisition values | Anskaffningsvärden | |||||
| Opening acquisition values | Ingående anskaffningsvärden | 248 | 260 | 65 | 64 | |
| Investments | Investeringar | 1 | – | – | – | |
| Sales and disposals | Försäljningar och utrangeringar | 0 | – | 0 | – | |
| Reclassification | Omklassificeringar | -3 | -10 | 1 | 2 | |
| Translation differences | Omräkningsdifferenser | 1 | -2 | – | – | |
| Closing accumulated acquisition values | Utgående ackumulerade anskaffningsvärden | 247 | 248 | 66 | 65 | |
| Amortization | Avskrivningar | |||||
| Opening accumulated amortization | Ingående ackumulerade avskrivningar | -112 | -80 | -27 | -19 | |
| Amortization for the year | Årets avskrivningar | -18 | -18 | -7 | -8 | |
| Sales and disposals | Försäljningar och utrangeringar | 0 | – | – | 0 | |
| Reclassification | Omklassificeringar | – | -16 | – | – | |
| Translation differences | Omräkningsdifferenser | -1 | 1 | – | – | |
| Closing accumulated amortization | Utgående ackumulerade avskrivningar | -131 | -112 | -34 | -27 | |
| Closing carrying amount | Utgående bokfört värde | 116 | 136 | 32 | 39 | |
| Total intangible assets | Immateriella anläggningstillgångar totalt | 2,354 | 2,419 | 53 | 58 | |
Emission rights
In 2005, the EU introduced an emission rights system as a method for restricting carbon dioxide emissions. The Group holds permits for the production of 65,000 metric tons of wet laid tissue per year and 52,000 metric tons of airlaid tissue per year at the mill in Skåpafors and 10,000 metric tons of airlaid tissue in Dals Långed. The mills hold permits issued by the Administrative Board in Västra Götaland County regarding emissions of carbon dioxide, CO2. For the 2013 to 2020 trading period, Rexcell Tissue & Airlaid AB was allocated a total of 166,246 tonnes of CO2. The new trading period runs from 2021 to 2025 and during this period Skåpafors has received an allocation of 14,670 tonnes per year and Dals Långed 1,626 tonnes per year. For 2021, Skåpafors has thus been allocated 14,670 tonnes, while the corresponding allocation for 2020 was 17,349 tonnes. The production plant in Dals Långed is dormant and no allowances are used when there is no production, which means that the allocation for Dals Långed is effectively 0 tonnes per year. The allocation for Dals Långed has been dormant since 2017, but can be regained upon application. The emission rates for 2021 are not yet finally verified, so an adjustment may be made.
Excess emission rights are carried over to the following year, while support purchases are made if the emission rights are insufficient. If purchases of additional rights are made in 2022, the Company estimates that these will not reach any significant amount. In 2021, Rexcell Tissue & Airlaid AB had 3,839 (6,529) unused emission rights at a market value of SEK 0 (0) million. In total, 10,831 metric tones were used in Skåpafors in 2021, whereas the amount for 2020 was 10,820 metric tons . Received emission rights are reported as intangible assets recognized at an acquisition value of zero.
Allocation of goodwill
With the implementation of IFRS, allocation of the Group’s goodwill items has taken place through allocation ratios. In addition, goodwill on acquisition is allocated to the cash-generating units and operating segments based on a judgment of which units will benefit from the synergies, etc. created by the business combination. In making the allocation, management considers the estimated business volumes of the units and made a judgment of market growth for each unit. The allocation of goodwill is shown in the table below.
Acquisitions and goodwill
| Segments | Year | Acquisition | Country | Goodwill on acquisition1, SEK m | |||
| Segment | År | Förvärv | Land | Förvärvsgoodwill1, MSEK | |||
| BioPak | BioPak | 2019 | Horizons Supply Pty Ltd | Australia | Australien | 7 | |
| BioPak | BioPak | 2018 | BioPak Pty Ltd | Australia | Australien | 427 | |
| BioPak | BioPak | 2018 | Kindtoo Limited (Biopac UK Ltd) | UK | Storbritannien | 10 | |
| Duni | Duni | 2017 | United Corporation Ltd (Sharp Serviettes) | New Zealand | Nya Zeeland | 37 | |
| Duni | Duni | 2016 | Terinex Siam Co Ltd | Thailand | Thailand | 104 | |
| Duni | Duni | 2014 | Paper+Design Group | Germany | Tyskland | 197 | |
| BioPak | BioPak | 2013 | Song Seng Associates Pte Ltd | Singapore | Singapore | 50 2) 3) |
2) Acquisition of assets and liabilities
3) For 2021, the goodwill is fully impaired due to ongoing restructuring
Allocation of goodwill to the Group’s cash-generating units
The Group’s operations are divided into two business areas, Duni and BioPak. Each business area has full responsibility for its respective value chain. These business areas make up the operating segments. Each business area is responsible for its respective branding strategy, marketing communications, product development and innovation. The Duni business area has a vertically integrated business model for small paper-based products such as napkins and table covers. The BioPak business area does not have any in-house manufacturing or production. Group-wide functions such as accounting, HR, communications, sustainability, and IT are largely shared by the business areas, and the expenses for these are allocated by the percentage of sales of each business area. The business areas are the two cash-generating units. Goodwill has been allocated to these based on the product portfolio of the respective acquisitions and thus the business area to which they belong.
| SEK m, segment | 2021 | 2020 | ||
| MSEK, segment | 2021 | 2020 | ||
| Duni | Duni | 1,538 | 1,534 | |
| BioPak | BioPak | 455 | 435 | |
| Duni Song Seng | Duni Song Seng | 0 | 26 | |
| Sharp Serviettes | Sharp Serviettes | 17 | 16 | |
| Total | Summa | 2,010 | 2,011 |
Impairment testing for goodwill
Impairment testing for goodwill is performed annually at the end of the fiscal year and when there are indications of impairment. For the 2020 and 2021 fiscal years, both of which have been heavily impacted by COVID-19, the uncertainty has been too great and it has been judged that impairment tests could not be performed earlier than the year-end. The effects are short-term as operations are expected to return to normal with some delay as social constraints in Europe ease.
The tables below shows the rate of growth (on average) used in the calculation for each business area and fiscal year. Even if the estimated rate of growth which is applied to discounted cash flows after the forecast five-year period had been 1% lower than the management’s judgment, there would be no goodwill impairment of the goodwill tested for each segment or individual companies.
In December 2020, it was decided to restructure the Singapore operation. Duni Group has two operating companies in Singapore, of which Duni Song Seng Pty Ltd has a product portfolio consisting mostly of non-sustainable products and packaging. BioPak Sustainable Solutions Pty Ltd will take over the sales, warehousing and distribution of sustainable packaging solutions and subsequently Duni Song Seng Pty Ltd will be discontinued. Goodwill of SEK 27 million and remaining intangible assets such as customer relationships of SEK 6 million in Duni Song Seng Pty Ltd have been impaired.
Sharp Serviettes is less profitable than forecasted at the time of the acquisition and is not yet fully integrated into Duni Group. The integration is delayed due to the pandemic, but started up with new management and greater involvement in production and sales in 2020. Due to COVID-19 affecting sales and profitability, Duni Group has continued to assess that Sharp Serviettes should continue to test goodwill for impairment on an individual basis. The impairment test has not shown any need for impairment. Had the impairment test been performed at business area level, it would not have generated any impairment charge either. The assessments in the assumptions were based on the companies’ current situation, 2021 outcomes, 2022 budgets and the best estimate in light of these circumstances of what the companies can achieve in the future.
The estimated pre-tax discount rate is shown in the table below:
| Discount rate before tax used per segment | 2021 | 2020 | ||
| Segment – diskonteringsränta före skatt | 2021 | 2020 | ||
| Duni | Duni | 9.7 % | 9.4 % | |
| BioPak | BioPak | 11.0 % | 10.3 % | |
| Duni Song Seng | Duni Song Seng | – | 11.7 % | |
| Sharp Serviettes | Sharp Serviettes | 13.1 % | 13.3 % |
The tables below shows the rate of growth (on average) used in the calculation for each business area and fiscal year.
| Growth rate segment 2021 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Beyond the forecast period | Growth rate segment 2020 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Beyond the forecast period | ||||
| Segment – tillväxttakt 2021 | År 1 | År 2 | År 3 | År 4 | År 5 | Bortom prognos- perioden | Segment – tillväxttakt 2020 | År 1 | År 2 | År 3 | År 4 | År 5 | Bortom prognos- perioden | ||||
| Duni | Duni | 37% | 10% | 7% | 2% | 2% | 2% | Duni | Duni | 12% | 20% | 2% | 2% | 2% | 2% | ||
| BioPak | BioPak | 21% | 6% | 15% | 10% | 8% | 2% | BioPak | BioPak | 10% | 20% | 20% | 10% | 5% | 2% | ||
| Duni Song Seng | Duni Song Seng | – | – | – | – | – | – | Duni Song Seng | Duni Song Seng | 18% | 4% | 5% | 5% | 1% | 1% | ||
| Sharp Serviettes | Sharp Serviettes | 32% | 10% | 5% | 6% | 7% | 2% | Sharp Serviettes | Sharp Serviettes | 25% | 10% | 5% | 7% | 9% | 2% |
The rate of growth has been adjusted in light of the ongoing COVID-19 pandemic and the estimated recovery effect following the easing of social restrictions. In the long term and beyond the forecast period, the pandemic is not estimated to have any impact.