8 Movements in the intangible assets

CHF million	Land use rights	Software	Royalties, patents, others	Total

Cost
As of 31 December 2014	15	39	14	68

Additions		3	1	4
Disposals		–1	–1	–2
Translation adjustment	–1	–1	–1	–3
As of 31 December 2015	14	40	13	67

Additions	1	3	1	5
Disposals	–1			–1
Changes in scope of consolidation			1	1
Translation adjustment	1			1
As of 31 December 2016	15	43	15	73

Accumulated amortization
As of 31 December 2014	–3	–26	–12	–41

Additions		–3	–1	–4
Disposals		1	1	2
Translation adjustment		1	1	2
As of 31 December 2015	–3	–27	–11	–41

Additions	–1	–3	–1	–5
Impairment			–1	–1
Translation adjustment		–1		–1
As of 31 December 2016	–4	–31	–13	–48

Carrying amount
As of 31 December 2014	12	13	2	27
As of 31 December 2015	11	13	2	26
As of 31 December 2016	11	12	2	25

The intangible assets are subdivided into “Land use rights”, “Software”, and “Royalties, patents, others”. These are the major categories of the intangible assets.

Land use rights, in the amount of CHF 11 million, and the “Royalties, patents, others” category in the amount of CHF 2 million were completely unchanged from the previous year. “Software”, in the amount of CHF 12 million, remained almost unchanged compared with the previous year (previous year: CHF 13 million).

Impairment charges in the amount of CHF 1 million in the “Royalties, patents, others” category relate to an exclusive supplier agreement with the GF Piping Systems division, which had to be written down due to non-performance of a contract, and a sole agency agreement in Korea with the GF Machining Solutions division, which was written off due to the termination of the contract.

Goodwill

Goodwill from acquisitions is offset against the Corporation’s equity at the acquisition date. The theoretical amortization is based on the straight-line method over the useful life of five years. The adjustment in the year under review in the amount of CHF –1 million (previous year: CHF 29 million) is due to a belated adjustment of the conditional purchase price of Sterisol from the year 2013. The adjustment will be amortized together with the goodwill over the remaining period of amortization.

The theoretical capitalization of the goodwill would affect the result of the consolidated financial statements as follows:

Theoretical movements in goodwill

CHF million	2016	2015

Cost
As of 1 January	500	501

Additions from acquisitions	54
Adjustments	–1	29
Translation adjustment	–8	–30
As of 31 December	545	500

Accumulated amortization
As of 1 January	–441	–437

Additions regular	–38	–26
Translation adjustment	4	22
As of 31 December	–475	–441

Theoretical book values, net
As of 1 January	59	64
As of 31 December	70	59

Effect on income statement

CHF million	2016	2015

Operating result (EBIT)	311	296
Return on sales (EBIT margin) %	8.3	8.1
Amortization goodwill	–38	–26
Theoretical operating result (EBIT) incl. amortization of goodwill	273	270
Theoretical return on sales (EBIT margin) %	7.3	7.4

Net profit	225	198
Amortization goodwill	–38	–26
Theoretical net profit incl. amortization of goodwill	187	172

Effect on balance sheet

CHF million	2016	2015

Equity according to balance sheet	1’200	1’130
Theoretical capitalization of net book value of goodwill	70	59
Theoretical equity incl. net book value of goodwill	1’270	1’189

Equity as % of balance sheet total	37.5	36.7
Theoretical equity incl. net book value of goodwill as % of balance sheet total (incl. goodwill)	38.8	37.8

For goodwill positions, that are listed in the theoretical movements, an impairment test is performed, if there is any indication that these goodwill positions could be affected from such an impairment. If such indications exist, an impairment test is performed for the goodwill positions offset against equity to determine the recoverable amount.

On the basis of the impairment test made on the balance sheet date, no indications of impairment were found, therefore all goodwill positions have retained their recoverable value. The goodwill of Georg Fischer Hakan Plastik AS was tested for impairment in addition. The recoverable amount of Georg Fischer Hakan Plastik AS equals the value in use, which is determined based on future discounted cash flows.

As a basis for the calculation, business plans for the next five years are used. Subsequent years are included in the calculation using a perpetual annuity with a growth assumption of zero. The projections are based on knowledge and experience as well as on current judgments made by management as to the probable economic development of the relevant markets. It is assumed that there are no significant planned changes in the organization of any of the divisions, except for the measures already decided and announced.

By applying the capital asset pricing model, a specific rate for the cost of capital was calculated for Georg Fischer Hakan Plastik AS. The calculation of this discount rate refers to the data of a relevant peer group. Furthermore, specific values for the risk-free interest rate, the market risk premium, the borrowing costs, and the tax rate were applied.

Since the cash flow projections are based on cash flows after tax, the discount rate has also been determined taking tax effects into account. The discount rate for Georg Fischer Hakan Plastik AS was calculated at 16.0%.

It was confirmed that the theoretical goodwill of Georg Fischer Hakan Plastik AS retained its recoverable value.