62% of the value of the world's quoted companies is now intangible
Annual research by Brand Finance
AMSTERDAM, 20061229 -- Brand Finance plc, the brand valuation and management consultancy, today released its 2006 'Global Intangible Tracker' (GITä) in association with the Institute of Practitioners in Advertising. The study covers more than 5,000 companies in 25 countries over a five-year period, and reveals that disclosed intangibles represent 3.94% or $1.4 trillion of total enterprise value, up from $1.05 trillion in 2001. Disclosed intangible assets have grown by $309 million since 2001, which is 4% of the total enterprise value growth of $7.7 trillion evidenced over the period.
Intangible assets, including brands, are becoming increasingly important assets across all sectors. Of the top ten largest sectors intangibles represent 91% of the media sector and 89% of the pharmaceuticals sector, the highest percentages witnessed. Conversely they are least evident in auto manufacturing (80%), electricity (64%), insurance (53%) and banking (42%). Clearly even once 'commoditised' sectors, which were driven entirely by functional factors, are moving rapidly up the 'intangible value' curve.
Topping the disclosed intangible assets league table is France, where intangibles represent 24% of total value inherent in the Paris Bourse. It is followed by Germany (19%), the UK (17%), Italy (15%) and the Netherlands at 14%. Total intangibles, which include both disclosed and undisclosed intangibles, are highest in Switzerland and India. China, South Korea, Malaysia, Taiwan and Hong Kong have the highest percentage of value represented by Tangible Net Assets, partly explained by the dominance of sectors such as utilities and industrial manufacturing. In addition Hong Kong (South Korea?) is the only country in the bottom five that has adopted international accounting rules requiring companies to capitalise acquired intangibles, as long as they meet certain conditions.
$17.7 trillion of the total enterprise value of $34.6 trillion is 'undisclosed value'; this has increased by $4.1 trillion during the period. This value is partly explained by market factors, such as short-term premiums from M&A activity, however, the gap between disclosed value and market value can also be explained by intangibles. Intangible assets include brands, rights such as leases and intellectual property rights including patents and trademarks. Notably an anomaly that forbids the capitalisation of internally generated intangibles contributes to the chasm meaning companies cannot capitalise and account for all of their assets. For example the Cadbury's brand cannot be capitalised even though the parent company can capitalise its acquired, but no less valuable brands, like Adams.
David Haigh, CEO of Brand Finance commented, "New accountancy rules introduced in the late nineties have clearly had an impact on the reporting of intangibles and the stated composition of value in international companies. The fact that intangibles, like brands, are now being recognised is an important change and reflects the reality that they represent huge value and should be present in financial accounts. It is clear that regardless of the sector, intangibles have grown in importance and significance. The next challenge is to track these assets and report managements' success or otherwise in extracting value from them."
Hamish Pringle, Director General, IPA commented, "This new study explains how financial reporting of disclosed intangible assets is likely to increase in the future, both because of the need for improved management accountability, and the need for greater understanding, in acquisition valuation, of the likely classification and useful economic lives of identifiable intangible assets. Given these market dynamics, this report is both timely and opportune. It also breaks new ground in providing, in readily digestible form, global, country and sector-based benchmarks of intangible asset value."
ENDS
A full report including tables, case studies and detailed analysis is available at www.brandfinance.com .
David Haigh, CEO, Brand Finance plc
d.haigh@brandfinance.com
+44 20 8607 0300
Marc Cloosterman,Managing Director, Brand Finance (Netherlands) BV
m.cloosterman@brandfinance.com
+31 20 670 21 65
Hamish Pringle, Director General, IPA
hamish@ipa.co.uk
+44 20 7201 8209
About Brand Finance Plc
Brand Finance Plc is an independent consultancy focused on the management and valuation of brands and branded businesses. Since 1996, Brand Finance has performed hundreds of brand valuations with an aggregate value of over $150 billion. The valuations have been in support of a variety of business needs including:
·Technical valuations for accounting, tax and legal purposes
· Valuations in support of commercial transactions (acquisitions, divestitures, licensing and joint ventures) involving different forms of intellectual property
· Valuations as part of a wider mandate to deliver value-based marketing strategy and tracking, thereby bridging the gap between marketing and finance
Brand Finance is headquartered in London and has representative offices in Toronto, New York, São Paolo, Madrid, Amsterdam, Paris, Zagreb, Dubai, Bangalore, Colombo, Singapore, Hong Kong and Sydney.
www.brandfinance.com
Brand Finance