Fortis Annual Report 2007 - Goodwill and other intangible assets

Goodwill and other intangible assets as at 31 December are as follows:

			General (incl.
	Banking	Insurance	eliminations)	Total
31 December 2007
Goodwill	1,025	490		1,515
VOBA		1,007		1,007
Purchased software	141	19		160
Internally developed software	268	24		292
Other intangible assets	125	240		365
Total	1,559	1,780		3,339

31 December 2006
Goodwill	744	235		979
VOBA		800		800
Purchased software	73	15		88
Internally developed software	60	7		67
Other intangible assets	103	224		327
Total	980	1,281		2,261

31 December 2005
Goodwill	475	203		678
VOBA		870		870
Purchased software	49	17		66
Internally developed software	2			2
Other intangible assets	108	198		306
Total	634	1,288		1,922

Intangible assets are amortised in accordance with the expected lives of the assets. Goodwill is tested for impairment at least annually by comparing the recoverable amount to the carrying value.

Other intangible assets include intangible assets with definite useful lives, such as concessions, patents, licences, trademarks and other similar rights. In general, software is amortised over a maximum of five years and other intangible assets have an expected useful life of 10 years at most.

Value of business acquired (VOBA) is the difference between the fair value at acquisition date and the subsequent book value of a portfolio of contracts acquired separately or in a business combination. VOBA is recognised as an intangible asset and amortised over the income recognition period of the portfolio of contracts acquired.

With the exception of goodwill, Fortis does not have intangible assets with indefinite useful lives.

Changes in Goodwill and other intangible assets

Changes in Goodwill and other intangible assets for the years 2006 and 2007 are shown below.

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						2006
				Internally	Other
			Purchased	developed	intangible
	Goodwill	VOBA	software	software	assets	Total

Acquisition cost as at 1 January	680	1,030	240	2	386	2,338
Acquisitions/divestments of subsidiaries	342	7	4		75	428
Additions			63	65	8	136
Adjustments arising from subsequent changes in value of assets and liabilities	3					3
Reversal of cost due to disposals			(10)			(10)
Foreign exchange differences	(57)		(2)		(9)	(68)
Other	17	(2)	4		(9)	10
Acquisition cost as at 31 December	985	1,035	299	67	451	2,837


Accumulated amortisation as at 1 January		(160)	(174)		(67)	(401)
Acquisitions/divestments of subsidiaries			(2)			(2)
Amortisation expense		(76)	(34)		(39)	(149)
Reversal of amortisation due to disposals			8			8
Foreign exchange differences			1		1	2
Other		3	(10)		(9)	(16)
Accumulated amortisation as at 31 December		(233)	(211)		(114)	(558)

Impairments as at 1 January	(2)				(13)	(15)
Divestments of subsidiaries
Increase of impairments charged to the income statement	(5)	(3)				(8)
Reversal of impairments credited to the income statement		4				4
Other	1	(3)			3	1
Impairments as at 31 December	(6)	(2)			(10)	(18)

Goodwill and other intangible assets as at 31 December	979	800	88	67	327	2,261


						2007

Acquisition cost as at 1 January	985	1,035	299	67	451	2,837
Acquisitions/divestments of subsidiaries	563	318	6		29	916
Additions			105	226	52	383
Adjustments arising from subsequent changes in value of assets and liabilities	1					1
Reversal of cost due to disposals			(19)	(2)		(21)
Foreign exchange differences	(26)	(22)	(1)	(1)	(4)	(54)
Other	(2)	(3)	(7)	5		(7)
Acquisition cost as at 31 December	1,521	1,328	383	295	528	4,055


Accumulated amortisation as at 1 January		(233)	(211)		(114)	(558)
Acquisitions/divestments of subsidiaries			(1)		(2)	(3)
Amortisation expense		(83)	(45)	(3)	(39)	(170)
Reversal of amortisation due to disposals			17			17
Foreign exchange differences		1	1			2
Other		(1)	16		(8)	7
Accumulated amortisation as at 31 December		(316)	(223)	(3)	(163)	(705)

Impairments as at 1 January	(6)	(2)			(10)	(18)
Divestments of subsidiaries
Increase in impairments charged to the income statement		(3)				(3)
Reversal of impairments credited to the income statement					10	10
Other
Impairments as at 31 December	(6)	(5)				(11)

Goodwill and other intangible assets as at 31 December	1,515	1,007	160	292	365	3,339

Impairment on goodwill

Impairment testing on goodwill is performed annually at the end of the year by comparing the recoverable amount of cash-generating units (CGU) to their carrying amount. The recoverable amount is determined by the highest of the value in use or fair value less costs to sell. The type of acquired entity determines the definition of the type of CGU. Currently all CGU’s have been defined at (legal) entity level.

The recoverable amount of a CGU is assessed through a discounted cash-flow model of the anticipated future cash flows of the CGU. The key assumptions used in the cash-flow model depend on input reflecting various financial and economic variables, including the risk-free rate in a given country and a premium to reflect the inherent risk of the entity being evaluated. These variables are determined on the basis of management’s judgement. If the entity is listed on a stock market, also this market price is considered as an element in the evaluation.

There were no impairments on goodwill in 2007 (2006: EUR 4 million).

The breakdown of goodwill and impairments for the main cash-generating units as at 31 December 2007 is as follows:

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	Goodwill	Impair-	Net		Method used for
	amount	ments	amount	Segment	recoverable amount
Cash-generating unit (CGU)
Fundamentum Asset Management	28		28	Merchant &	Value in use
				Private Banking
Centrapriv	26		26	Merchant &	Value in use
				Private Banking
Fortis Commercial Finance	43		43	Merchant &	Value in use
				Private Banking
Fortis Energy	127		127	Merchant &	Value in use
				Private Banking
Alpha Credit	22		22	Retail Banking	Value in use

Von Essen KG Bank	28		28	Retail Banking	Value in use

Cadogan	119		119	Retail Banking	Value in use

Fortis (UK) Limited (Outright)	20		20	Insurance International	Value in use

Fortis Vastgoed Ontwikkeling	35		35	Insurance Netherlands	Value in use

Milleniumbcp Fortis Limited	168		168	Insurance International	Value in use

Fortis Bank AS (Turkey)	308		308	Multi-segment banking	Value in use
					and market price
Fortis Insurance Company Asia	241		241	Insurance International	Value in use

Dominet S.A.	221		221	Retail Banking	Value in use

Captive Finance	17		17	Merchant &	Value in use
				Private Banking
Prestibel Left Village	10		10	Insurance Belgium	Value in use

Other	108	6	102		Value in use

Total	1,521	6	1,515

Amortisation of VOBA

Expected amortisation expenses for VOBA from 2008 onwards are as follows:

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	2008	2009	2010	2011	2012	Later

Estimated amortisation of VOBA	81	77	65	62	58	664

23 Goodwill and other intangible assets

Changes in Goodwill and other intangible assets

Impairment on goodwill

Amortisation of VOBA