8.10
Non-current assets

8.10.1 Property, plant and equipment

Changes in property, plant and equipment are as follows:

Land and buildings with a carrying amount of € 4.7 million per 31 December 2019 (2018: € 4.4 million) have been pledged as security; on the one hand to the trustees of the UK pension fund in the amount of € 3.0 million (2018: € 2.9 million) and on the other hand as security of a bank loan in the amount of € 1.7 million (2018: € 1.6 million).

Property under construction at 31 December 2019 represents € 3.1 million for Wiener Bike Parts (offices) and € 1.0 million for Accell Hunland (employee facilities). Both assets are not yet ready for use.

The divestments relate the sale of a Brasseur building (Belgium), the demolition of a Cycles France Loire building (France), the outgoing business combination of Delta Metal Technology Ltd (production facility, China) and the discontinued operations in North America.

Accounting estimates and judgement

Estimates are required to determine the (remaining) useful lives of fixed assets. Useful lives are determined based on an asset’s age, the frequency of its use, repair and maintenance policy, technological changes in production and expected restructurings.

The expected residual value is estimated per asset item and is the higher of the expected sales prices or the scrap value. The residual value is estimated based on recent market transactions involving the sale of similar items or on its material scrap value.

Depreciation is charged to profit or loss on a straight-line basis over the estimated useful lives as Accell Group believes that straight-line depreciation most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.

Accounting policy

Items of property, plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. Any gain or loss on disposal of an item of property, plant and equipment is recognized in profit or loss (depreciation). Depreciation is calculated to write off the cost of items of property, plant and equipment less their estimated residual values using the straight-line method over their estimated useful lives, and is generally recognized in profit or loss. Land is not depreciated. Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted prospectively if appropriate.

The estimated useful lives of property, plant and equipment are as follows:

Property, plant and equipment is derecognized when it is sold or scrapped. Gains on sales are presented in other income (see note 6.7.2) and losses on sales are included in depreciation.

8.10.2 Right-of-use assets

The lease liabilities are disclosed in note 6.9.1.3.

Accounting estimates and judgement.

At the inception of a contract, Accell Group assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for a consideration. Accell Group has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component.

Right-of-use assets are depreciated to the earlier of the end of the useful life of the asset or the lease term using the straight-line method as Accell Group believes that this most closely reflects the expected pattern of consumption of the future economic benefits. The lease term includes periods covered by an option to extend or to  terminate early if Accell Group is reasonably certain to exercise that option.

Accounting policy

At the lease commencement date a right-of-use asset and a lease liability are recognized. The right-of-use asset is initially measured based on the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset. The assets are depreciated over the lease term which currently varies from two to ten years. Right-of-use assets are tested for impairment. 

8.10.3 Goodwill and other intangible assets

(A) Goodwill

Goodwill is tested for impairment annually or more frequently if there are indications of impairment losses. For the purposes of this test, goodwill is allocated to cash-generating units (CGU’s). Allocation is made to the (group of) CGU’s that is expected to benefit from the business combination from which the goodwill arose. The CGU’s used in the assessment correspond with the operational segments and are Bikes and Parts.

The carrying amount of goodwill at segment level is divided as follows:

Goodwill impairment testing

The following main assumptions are used to determine the value-in-use of the segments Bikes and Parts and are based on expected developments in specific markets and countries and the forecasted impact for Accell Group:

After the plan period 2020-2022, cash flows are extrapolated using a perpetual growth rate of 0.2% (2018: 1.1%) which is equal to the risk free interest rate. The cash flows are discounted using a post-tax weighted average cost of capital of 6.9% (2018: 7.3%). The discounting rate applied corresponds with a pre-tax weighted average cost of capital of 9.3% (2018: 9.8%). The impairment test in 2019 showed a substantial headroom in goodwill for Bikes and sufficient headroom for Parts.

Sensitivity to changes in the main assumptions

Neither a 50 basis points adverse change in operating margin and a 100 basis points higher discount rate resulted in a materially different outcome of the impairment test. Accell Group believes that any reasonably possible change in the main assumptions would not cause the carrying amount to exceed the recoverable amount of the cash-generating units Bikes or Parts.

Accounting estimates and judgements

The cash flow projections used in the value-in-use calculation for goodwill impairment testing contain various estimates and judgements (see table above). The robustness of the outcome of the goodwill impairment is tested via a sensitivity analysis on the main assumptions.

Accounting policy

Goodwill arising on the acquisition of subsidiaries is measured at cost less accumulated impairment losses. Goodwill is tested annually for impairment. Impairment losses are recognized in profit or loss and are not reversed. On disposal of a cash-generating unit the carrying amount of the goodwill attributed to that cash generating unit is taken into account in calculating the book profit or loss.

(B) Brands

The brands recognized at 31 December 2019 are included in the operating segment Bikes and consist primarily of the Raleigh (€ 18.6 million), Babboe (€ 9.4 million) and Ghost (€ 9.4 million) brands. Furthermore the Nishiki, Carraro and Van Nicholas brands are valued for a total amount of € 2.3 million. During 2019 Accell discontinued its North American operations, which resulted in the divestment of the Redline and IZIP brands (€ 2.2 million). The related financial impact is included in the result from discontinued operations (see note 6.16.1). In addition the Diamondback brand was divested in August 2019, which resulted in a loss of € 5.4 million.

With exception of the relatively young brand Babboe (2007), which has a definite useful life of 15 years, all brands have indefinite useful lives as there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for Accell Group. The brands with indefinite useful lives are positioned in the middle and upper segments and have a long history and tradition in the regional and international markets in which they operate.

Brand impairment testing

In the annual impairment testing for brands with indefinite life Accell Group applies the income approach to determine the value-in-use. It is a technique by which fair value is estimated based on cash flows that the brand can be expected to generate over its useful life and uses valuation techniques to convert future cash flows or earnings to a single present amount (discounted). The valuation technique applied by Accell Group is the Relief-from-Royalty method, which is a common present value technique for valuing marketing-related intangibles such as brands. The income concept of this method is based on projected royalty savings. It assumes that if the subject brand was not in control of Accell Group, a royalty would have to be paid to a third party to (develop and) use a comparable alternative intangible asset.

In Accell Group's brand impairment model the valuation base is set at sales, tax payments are deducted and the present value of the hypothetical royalty savings (ranging from 2.6%-4.0% in 2019; 2.8%-4.0% in 2018) are calculated by applying a post-tax weighted average cost of capital of 6.9% (2018: 7.3%), which corresponds with a pre-tax weighted average cost of capital of 9.3% (2018: 9.8%). If applicable the tax amortization benefit is considered. Based on the value-in-use the 2019 impairment test showed sufficient headroom for all tested brands.

Accounting estimates and judgements

The cash flow projections used in the value-in-use calculation for brand impairment testing contain various estimates and judgements. Useful lives are estimated based on the market position of the brands and include an analysis of all relevant factors to determine whether there is a foreseeable limit to the period over which the asset is expected to generate net cash inflows.

Accounting policy

A brand is a group of complementary assets such as trademarks (or service mark) and its related trade name, formulas, recipes and technological expertise. Accell recognizes as a single asset a group of complementary intangible assets comprising a brand if the individual fair value of the complementary assets are not reliably measurable. Brands, commonly arising on the acquisition of subsidiaries, are measured at cost less any accumulated depreciation and accumulated impairment losses. Brands can have an indefinite or definite useful life.

Brands with an indefinite useful life are tested annually for impairment, or more frequently if there are indications of impairment losses (same for a brand with definite life), by comparing its recoverable amount with its carrying amount. The recoverable amount is the higher of its fair value less cost to sell less cost of disposal and its value in use.

Brands with a definite useful life are amortized on a straight-line basis over the estimated useful life. Accell Group believes that straight-line depreciation most closely reflects the expected pattern of consumption of the future economic benefits embodied in the brand. Amortization method and useful lives are reviewed at each reporting date and adjusted if appropriate.

(C) Customer lists and licenses

The customer lists and licenses consist of the Turkish dealer network, an extension of a licensing agreement and the customer list of Comet. The useful life of these respective assets is estimated at 20 years, 10 years and 20 years and are amortized as from 2012, 2013 and 2015 onwards. There were no impairment losses in 2019.

Accounting estimates and judgements

Useful lives are determined based on the estimated remaining useful life of the customer relationships or the period of the contractual arrangements.

Accounting policy

Customer relationships and licenses that are acquired by Accell Group and have definite useful lives are measured at cost less accumulated amortization and accumulated impairment losses. Amortization is calculated to write off the cost of these assets less their estimated residual values (nil) using the straight-line method over their estimated useful lives from the date they are available for use.

Amortization expenses and impairment losses are accounted for in the income statement within depreciation. Amortization methods and useful lives are reviewed at each reporting date and adjusted if appropriate.

An impairment loss is recognized if the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognized in profit or loss. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

(D) Software and development cost

These include capital expenditure on both software and development. In 2019 Accell Group invested € 4.2 million in software, which mainly related to ERP, CRM and single brand platforms, and capitalized € 0.8 million of development cost related to cargo-bikes and e-bikes. In addition, in 2019 Accell Group discontinued its North American operations, which resulted in the divestment of the software (€ 1.7 million). The related financial impact is included in the result from discontinued operations (see note 6.16.1). 

Accounting estimates and judgements

Useful lives are determined based on the estimates regarding technical and commercial developments.

Accounting policy

Expenditure on research activities is recognized in profit or loss as incurred. Development expenditure is capitalized only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and Accell Group intends to and has sufficient resources to complete development and to use or sell the asset. Otherwise, it is recognized in profit or loss as incurred. Subsequent to initial recognition, development expenditure is measured at cost less accumulated amortization and any accumulated impairment losses. 

Software is measured at cost less accumulated amortization and accumulated impairment losses. Amortization is calculated to write off the cost of intangible assets less their estimated residual values (nil) using the straight-line method over their estimated useful lives from the date they are available for use.

Amortization is calculated to write off the cost of intangible assets less their estimated residual values (nil) using the straight-line method over their estimated useful lives from the date they are available for use. Amortization expenses and impairment losses are accounted for in the income statement within depreciation. Amortization methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.

An impairment loss is recognized if the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognized in profit or loss. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

Accounting estimates and judgements

The estimated useful lives are as follows:

8.10.4 Equity-accounted investees

These associates and joint ventures are of strategic nature; the voting rights are equal to the percentage interest held.

The changes in the equity-accounted investees were as follows:

Summary of the financial data for the interests in equity accounted investees:

Accounting policy

Accell Group's interests in equity-accounted investees comprise interests in associates and a joint venture.

Associates are those entities in which Accell Group has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which Accell Group has joint control, whereby Accell Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities. 

Interests in associates and the joint venture are accounted for using the equity method. They are initially recognized at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include Accell Group’s share of the profit or loss and OCI of equity-accounted investees, until the date on which significant influence or joint control ceases.

An impairment loss in respect of an equity-accounted investee is measured by comparing the recoverable amount of the investment with its carrying amount. An impairment loss is recognized in profit or loss, and is reversed if there is a favourable change in the estimates used to determine the recoverable amount. 

8.10.5 Other financial assets

The other financial assets of € 4.4 million mainly consists of agreed upon postponed considerations to be received from the sale of fitness business of Tunturi Hellberg Oy in 2017 (€ 1.1 million) and Delta Metal in 2019 (€ 1.0 million), a postponed receivable with new large bike business clients of € 1.0 million, a prepayment made for the demolition of a building and the depollution of the land that will be compensated by the government (€ 0.4 million) and a 10% investment in a company (€ 0.5 million).

Accounting estimates and judgements

On each reporting date the impairment of other financial assets is determined using the general impairment model of IFRS 9 which estimates the credit losses over 12 months. The credit losses over the lifetime of the asset are only determined in the event of a significant increase in credit risk (e.g. more than 30 days overdue, change in credit rating). Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

Accounting policies

Other financial assets are measured at fair value and subsequently at amortized cost less any impairment losses.