View the full Brand Finance GIFT™ 2019 report here
The value of undisclosed intangible assets globally has declined for the first time since 2011, falling 8% year on year, according to the Brand Finance Global Intangible Finance Tracker (GIFT™) 2019 report. The value of the world’s undisclosed intangible assets is now at US$35.4 trillion, compared to US$38.5 trillion the year before. This type of reduction is normally only recorded in years of recession.
At the same time, global enterprise value, understood as the total worth of the world’s publicly traded companies, stands at US$104.5 trillion, up from US$102.5 trillion last year. Despite the rise in total business value, this 2% growth is also the smallest growth recorded since 2011.
Both the stagnation of growth in total enterprise value and the decline in the value of undisclosed intangible assets reflect the conservative behaviour of investors in global markets over the last year, as global economic activity remains weak. Key sectors have lost momentum, with the proportion of undisclosed intangibles within enterprise value falling to levels of the 2007-2008 global financial crisis. This slowdown, paired with rising trade tensions between the world’s superpowers, has damaged global business confidence and investment.
David Haigh, CEO of Brand Finance, commented:
“The global economy has entered troubled waters. With little sign of political winds changing any time soon, its resilience will be tested to the limits. Should tensions between East and West continue, we could find ourselves full steam ahead on course towards the next global financial crisis.”
With the intangibles in decline, this year brought about a rebalancing of value between the two categories, with tangible assets - at 52% - now forming more than half of total global enterprise value. Undisclosed intangible assets are the balancing figure between market and book value, and therefore their decline is intrinsically connected to the decline of the market value of companies globally.
High proportion of undisclosed intangibles is sign of market trust
Looking at the trends on the national level, out of the top 50 countries globally by GDP, 35 have experienced a fall in undisclosed intangible value relative to their enterprise value.
The countries that have seen the greatest drop in their undisclosed intangible assets relative to their enterprise value year on year are Iraq (down 29 pp from 42% to 13%); Pakistan (down 28 pp from 31% to 3%); South Korea (down 21 pp from 0% to -21%); and India (down 16 pp from 47% to 31%).
In contrast, Romania’s (up 15 pp from -23% to -8%), Russia’s (up 12 pp from -15% to -3%) and Turkey’s (up 9 pp from -4% to 5%) undisclosed intangible asset values have entered recovery mode, recording an uptick in growth following turbulent years for all three countries.
More than a recovery story, Brazil is a standout country that has seemingly bucked the global trend with a 16 pp growth in undisclosed intangible asset value from 21% to 37% of the overall enterprise value. Brazil has focused on recovery since the sapping recession of 2015 and 2016.
The top 10 nations with highest percentage of undisclosed intangible asset value have recorded little change year on year, testament to their market stability. The list is made up of developed economies, with the exception of Indonesia and Vietnam – Southeast Asian countries recording consistent investment and growth levels over the past years. Denmark, United States, and Ireland rank highest, with 58%, 53%, and 51% of enterprise value attributable to undisclosed intangible assets respectively.
David Haigh, CEO of Brand Finance, commented:
“The list of countries with a high proportion of enterprise value residing in intangible assets does not surprise. The economies of the United States, Ireland, Nordic countries – all boast a solid reputation on the global stage. The combination of strong brands and market trust certainly helps cushion these countries from global economic turbulence.”
Trouble in auto, banking, and oil & gas sectors
The automobiles, banking, and oil & gas sectors stand out in the GIFT™ report due to a very low proportion of undisclosed intangible value in their total enterprise values.
The automobiles industry has just 1% undisclosed value, compared to 86% tangible net asset value. This marks a sharp drop from 16% undisclosed value last year, by more percentage points than any other sector in the past year. Initially more gradual, this decline from peak share of undisclosed intangibles at 28% in 2014, is a result of missed expectations in the sector. Auto companies have invested heavily in innovative technology, in particular electric and autonomous vehicles, in anticipation of increased global demand. However, such demand has not materialised, and the markets are now doubtful whether it ever will, especially with slowing economic growth in China.
Auto manufacturers Hyundai, Volkswagen, Daimler, Honda, and Nissan have the highest negative undisclosed intangible values in this year’s analysis – a direct correlation with their high exposure to the Chinese market. In contrast, Tesla, Ferrari, Toyota, Maruti Suzuki, and General Motors recorded positive undisclosed intangible values due to high sales volumes in the US.
David Haigh, CEO of Brand Finance, commented:
“Automotive companies have yet to reap the rewards of high investment in R&D, especially in autonomous and electric vehicle technology. If they want to stimulate demand and improve investor perception to recover their market value, their attention must focus on marketing and brand investment.”
At 5% of enterprise value, the banking sector has the second-lowest share of undisclosed intangibles behind only automobiles. Overall, the share of undisclosed intangible value in banking decreased 7 pp from 12% last year, as that of the tangible net asset value increased to 85%, and the enterprise value as a whole saw a dip of 2%. The absolute value of the banking sector remained considerably higher than any other’s, at a colossal US$16.4 trillion.
Globally, the banking sector will have to contend with the growing anticipation of a financial crisis, and the worldwide drop in interest rates, which will continue to impact levels of investment and economic growth.
The oil & gas sector has 8% undisclosed intangibles versus 85% tangible assets. The undisclosed value in this sector fluctuates significantly year on year, its highest in 2013 and again last year at 21%, to a low of -2% in 2015. This volatility echoes changing oil prices, including the crash of 2015. Now yet again, countries and companies alike are facing increased uncertainty in the face of the pessimistic outlook for the oil market, where prices and exports are expected to weaken due to lower global demand.
The OPEC+ agreed to extend oil output cuts until March 2020, a move that seeks to prevent prices from falling, as production in the US continues to soar. The ongoing concerns that oil storage is running low is also impacting the level of investments coming into the oil industry.
In addition, the combination of the Western world becoming ever more environmentally conscious and the rise of alternative fuels is putting increased long-term pressure on the sector.
Microsoft overtakes Amazon as world’s most intangible company
Every year, the Brand Finance GIFT™ report ranks the world’s most intangible companies and those with the highest levels of intangible asset disclosure.
The very nature of the internet & software and technology & IT sectors means they are heavily reliant on intangible assets. These companies have the ability to differentiate themselves with limited physical assets, defending price and demand. 25 internet & software and technology & IT companies feature in the top 100 ranking of companies with the highest total intangible value.
This year, Microsoft has overtaken Amazon to become the company with the highest total intangible value, at US$904 billion, compared with Amazon at US$839 billion. US$860 billion of Microsoft’s intangibles remain undisclosed, a jump from US$641 billion last year. 2019 has been a record-breaking year for Microsoft, which now boasts the largest commercial cloud business in the world.
Looking at levels of disclosure, AT&T, AB InBev, and Comcast Corporation are the most transparent companies in their reporting and take the top three ranks by disclosed intangible value.
AT&T reports US$310 billion of disclosed intangibles versus US$60 billion undisclosed. This is a trend across the telecoms sector as companies rely on securing contracts and high levels of customer engagement to succeed.
Second-placed AB InBev reports US$178 billion of intangibles on its balance sheet. At the end of 2016, AB InBev merged with SAB Miller in a record-breaking US$100 billion deal, simultaneously creating the world’s largest beer firm.
In third is Comcast Corporation, which reports US$164 billion of disclosed intangible assets, a jump from US$115 billion last year. In 2019 alone, Comcast has acquired three subsidiaries: BluVector, Deep Blue Communications, and Metrological. The biggest acquisition recently, however, is the purchase of British telecoms and media conglomerate Sky for US$39 billion at the end of 2018.
About Brand Finance GIFT™
The Brand Finance Global Intangible Finance Tracker (GIFT™) report is the world’s most extensive annual research exercise into intangible assets, considering nearly 58,000 publicly quoted companies (with a total value of over US$100 trillion) across 177 jurisdictions.
In its analysis, the Brand Finance GIFT™ 2019 report provides detailed insight into intangible value reporting by company, sector, and country. Consult the report document for graphs, additional insights, and opinion pieces by our experts.
Brand Finance is the world’s leading brand valuation consultancy. Bridging the gap between marketing and finance, Brand Finance evaluates the strength of brands and quantifies their financial value to help organisations of all kinds make strategic decisions.
Headquartered in London, Brand Finance has offices in over 20 countries, offering services on all continents. Every year, Brand Finance conducts more than 5,000 brand valuations, supported by original market research, and publishes over 100 reports which rank brands across all sectors and countries.
Brand Finance is a regulated accountancy firm, leading the standardisation of the brand valuation industry. Brand Finance was the first to be certified by independent auditors as compliant with both ISO 10668 and ISO 20671, and has received the official endorsement of the Marketing Accountability Standards Board (MASB) in the United States.
Brand is defined as a marketing-related intangible asset including, but not limited to, names, terms, signs, symbols, logos, and designs, intended to identify goods, services, or entities, creating distinctive images and associations in the minds of stakeholders, thereby generating economic benefits.
Brand strength is the efficacy of a brand’s performance on intangible measures relative to its competitors. Brand Finance evaluates brand strength in a process compliant with ISO 20671, looking at Marketing Investment, Stakeholder Equity, and the impact of those on Business Performance. The data used is derived from Brand Finance’s proprietary market research programme and from publicly available sources.
Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, each brand is assigned a corresponding Brand Rating up to AAA+ in a format similar to a credit rating.
Brand Finance calculates the values of brands in its rankings using the Royalty Relief approach – a brand valuation method compliant with the industry standards set in ISO 10668. It involves estimating the likely future revenues that are attributable to a brand by calculating a royalty rate that would be charged for its use, to arrive at a ‘brand value’ understood as a net economic benefit that a brand owner would achieve by licensing the brand in the open market.
The steps in this process are as follows:
1 Calculate brand strength using a balanced scorecard of metrics assessing Marketing Investment, Stakeholder Equity, and Business Performance. Brand strength is expressed as a Brand Strength Index (BSI) score on a scale of 0 to 100.
2 Determine royalty range for each industry, reflecting the importance of brand to purchasing decisions. In luxury, the maximum percentage is high, while in extractive industry, where goods are often commoditised, it is lower. This is done by reviewing comparable licensing agreements sourced from Brand Finance’s extensive database.
3 Calculate royalty rate. The BSI score is applied to the royalty range to arrive at a royalty rate. For example, if the royalty range in a sector is 0-5% and a brand has a BSI score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4%.
4 Determine brand-specific revenues by estimating a proportion of parent company revenues attributable to a brand.
5 Determine forecast revenues using a function of historic revenues, equity analyst forecasts, and economic growth rates.
6 Apply the royalty rate to the forecast revenues to derive brand revenues.
7 Discount post-tax brand revenues to a net present value which equals the brand value.
Brand Finance has produced this study with an independent and unbiased analysis. The values derived and opinions presented in this study are based on publicly available information and certain assumptions that Brand Finance used where such data was deficient or unclear. Brand Finance accepts no responsibility and will not be liable in the event that the publicly available information relied upon is subsequently found to be inaccurate. The opinions and financial analysis expressed in the study are not to be construed as providing investment or business advice. Brand Finance does not intend the study to be relied upon for any reason and excludes all liability to any body, government, or organisation.
The data presented in this study form part of Brand Finance's proprietary database, are provided for the benefit of the media, and are not to be used in part or in full for any commercial or technical purpose without written permission from Brand Finance.