Notes to the intangible assets

In the reporting period, a total of €105 million (previous year: €74 million) was spent on research and development. Development costs of €105 million (previous year: €52 million) were capitalized.

Intangible assets in exploration activities with a carrying amount of €320 million were recorded in the reporting period (previous year: €209 million).

Goodwill was allocated to cash-generating units at the segment level to carry out impairment tests. Goodwill breaks down as follows:

The goodwill of RWE Energy includes €668 million recognized in accordance with IAS 32. This goodwill stems from put options granted on minority interests. The previous year’s figure of €1,241 million also included the forward purchase of minority interests in RWE Westfalen-Weser-Ems AG, Dortmund; this amount is now included in goodwill in line with the general regulations.

In the reporting period, goodwill increased by €332 million (previous year: decrease of €2,090 million).

Additions of €111 million resulted from acquisitions by RWE Innogy. An increase in the current redemption liabilities on put options resulted in an adjustment of €135 million to the goodwill of RWE Energy without an effect on income. As a result of subsequent adjustments in relation to the merger with VEW AG in 2000, the goodwill of RWE Energy and RWE Power was increased by a total of €130 million.

Due to restructuring within the Group, RWE npower transferred goodwill in the amount of €329 million to the operating segment RWE Innogy.

The goodwill of RWE npower was reduced by €84 million (previous year: €138 million) in accordance with IAS 12.68, as tax benefits from periods prior to first-time consolidation were realized. In the previous year, the disposals of €1,789 million primarily resulted from the classification of American Water as a discontinued operation.

In the year under review and in the previous year, no impairment losses were recognized on goodwill on continuing operations. Currency effects decreased the carrying amount of goodwill by €894 million (previous year: €520 million).

The impairment test involves determining the recoverable amount of the cash-generating units, which corresponds to the maximum of the fair value less costs to sell or the value in use. The fair value reflects the best estimate of the sum that an independent third party would pay to purchase the cash-generating unit as of the balance-sheet date. Value in use is the present value of the future cash flows which are expected to be generated with a cash-generating unit. As of the balance-sheet date, both the fair value less costs to sell and the value in use of the cash-generating units were above their carrying amounts.

Fair value and value in use are determined on the basis of a business valuation model. Fair value is assessed from an external perspective and value in use from a company-internal perspective. Fair value and value in use are determined based on future cash flows, which, as a rule, are based on the business plan prepared for a period of three years, as approved by the Executive Board and valid when the impairment test is performed. Business plans are based on experience as well as on expected market trends in the future. If available, market transactions or third-party valuations of similar assets in the same sector are taken as a basis for determining the fair value.

Business plans are based on country-specific assumptions regarding the development of key economic indicators such as gross domestic product, consumer prices, interest rates and nominal wages. These estimates are derived from macroeconomic and financial studies, amongst other things.

The key planning assumptions for the business segments active in Europe’s electricity and gas markets are estimates relating to the development of wholesale prices for electricity, crude oil, natural gas, coal and CO₂ emission allowances, and retail prices for electricity and gas, as well as to the development of market shares and regulatory framework conditions.

The discount rates used for business valuations are determined on the basis of market data and range from 6.1 to 9.8 % for cash-generating units after tax (previous year: 6.5 to 8.5 %). Before tax, the interest rates used range from 8.1 to 17.3 % (previous year: 9.5 to 13.0 %).

RWE extrapolates future cash flows going beyond the detailed planning horizon based on constant growth rates of 0.0 to 0.5 % (previous year: 0.0 to 0.5 %). These figures are derived from experience and future expectations for each division and do not exceed the long-term average growth rates of the markets in which the companies are active. The cash flow growth rates are determined after subtracting the capital expenditure required to achieve the assumed cash flow growth.