Goodwill and intangible assets with an indefinite useful life

In addition to goodwill, intangible assets (trademarks/domains) with indefinite useful lives are found in the following business divisions:

Goodwill of CHF 290.1 million and intangible assets with indefinite useful lives of CHF 91.0 million apply to the largest cash-generating unit. These were tested for impairment on the basis of the value in use, growth rate calculation, discount rate and other assumptions in the TX Markets segment.

The goodwill and intangible assets with indefinite useful lives were tested for impairment for each cash-generating unit on 31 December 2020. The cash-generating units are determined at a level below the segments, provided they are largely independent of other assets. Their values in use were calculated using the discounted cash flow method.

The calculations on which the business plans are based refer to the values generated in the current year, the budget figures for 2021 and the medium-term expectations for each of the business divisions. The budget figures include the latest estimates relating to changes in revenues and costs. The estimates relating to the changes in revenues take into account external market data (WEMF, Media Focus, NET-Metrix) and are based on the current reader or user figures. Future changes in these numbers are forecast individually. Measures serving to improve net income are taken into account only if they have been officially approved and are already being implemented. The business plans take account of business risks with differing assessments. The business plans cover a period of four years. For the following years, the growth rate was set at -5.2 per cent for Tamedia, 0.0 per cent for 20 Minuten, 0.6 per cent for Goldbach and 1.0 per cent for TX Markets and Group & Ventures (previous year: –4.4 per cent for Tamedia, 0.0 per cent for 20 Minuten and Goldbach and 1.0 per cent for TX Markets and Group & Ventures).

For one cash-generating unit in the TX Markets segment, the realisable value (estimated sale proceeds less transaction costs) was established on the basis of a fair value determined not on the basis of observable market data but using comparable transactions.

The discount rates applied (WACC) are shown in the following table.

The discount rates before tax applied to the significant cash-generating units amount to 8.8 per cent (previous year: 7.6 per cent) for Tamedia, 7.9 per cent (previous year: 7.2 per cent) for 20 Minuten, 9.2 per cent (previous year: 6.2 per cent) for Goldbach, 10.2 per cent (previous year: 9.5 per cent) for TX Markets and 12.3 per cent (previous year: 9.5 per cent) for Group & Ventures.

Printed newspapers are suffering from falling advertising revenues, with the decline being accelerated by the coronavirus crisis, and their number of subscribers is also in decline. New digital subscriptions and revenues from online advertising are not yet able to compensate for these declines over the medium to long term. Lower cash flows are therefore to be expected in future for the Tamedia segment.

In view of these developments, the goodwill and intangible assets with indefinite useful lives were tested for impairment for the cash-generating unit Tamedia as early as the middle of 2020. These were tested for impairment on the basis of the value in use, growth rate calculation, discount rate and other assumptions. The values in use were calculated using the discounted cash flow method and are based on the values generated in the current year, the forecast for 2020 and the medium-term expectations for Tamedia. The latest estimates relating to changes in revenues and costs are also considered. In view of current developments and the ongoing uncertainty regarding the long-term market prospects for paid media, estimates for expected future cash flows were lowered, with growth forecasts reduced accordingly from -4.4 per cent to -5.4 per cent. The increase in the discount rate before tax from 7.6 per cent to 8.5 per cent also had a negative impact on valuation. The test showed a recoverable amount of CHF 176.0 million and that impairment of CHF 85.0 million was needed for Tamedia, which has already been reflected accordingly in the half-year results for TX Group.

The impairment testing at the end of 2020 did not show any impairment was needed for any cash-generating units. The test is performed once a year in each case and in the event of any signs of potential impairment. Additional impairment of goodwill and intangible assets with an indefinite useful life could result in future from changes in the fundamental data used for impairment testing.

In the previous year, an impairment of CHF 24.7 million was recorded on goodwill for the Paid Media cash-generating unit.

Impairment of goodwill and intangible assets with an indefinite useful life could result from changes in the fundamental data used for impairment testing, such as an ongoing deterioration in the gross margin or a change in cost structure.

The possible effects as at 31 December are presented on the basis of an assumed reduction in free cash flow and an increase in WACC.

A 10 or 20 per cent decline in free cash flow for the cash-generating unit Tamedia would give an achievable value of CHF 6.5 million or CHF 23.0 million below the carrying amount. A 2 per cent increase in WACC would give an achievable value of CHF 15.7 million below the carrying amount. A 10 or 20 per cent decline in free cash flow for the cash-generating unit Goldbach Group would give an achievable value of CHF 22.4 million or CHF 62.6 million below the carrying amount. A 2 per cent increase in WACC would give an achievable value of CHF 69.5 million below the carrying amount. Considered individually, any impact on the other units is not significant.