Note 15 Intangible fixed assets

Intangible fixed assets, external purchase Intangible fixed assets, internally developed
Group 2016, MSEK Goodwill Brands Customer relations Tenancies gravel and rock quarries Other intangible assets Industrial construction Total
Opening acquisition value 1,740 249 56 202 44 22 2,313
Purchases 2  2
Purchases through acquired companies  23  12  5 8  48
Sales/disposals  -8  -2  -26  -36
Sale of business -4 -4
Translation differences for the year  24  10  2  36
Closing accumulated acquisition value 1,783 263 61 202 28 22 2,359
Opening depreciation – -141 -44 -56 -37 -15 -293
Sales/disposals  8  2  26  36
Depreciation for the year 1)  -18  -3  -8  -2  -1  -32
Translation differences for the year  -4  -1  -5
Closing accumulated depreciation – -155 -46 -64 -13 -16 -294
Opening write-downs -21 – – – – -5 -26
Translation differences for the year  -3  -3
Closing accumulated write-downs -24 – – – – -5 -29
Closing book value 1,759 108 15 138 15 1 2,036

 

Intangible fixed assets, external purchase Intangible fixed assets, internally developed
Group 2015, MSEK Goodwill Brands Customer relations Tenancies gravel and rock quarries Other intangible assets Industrial construction Total
Opening acquisition value 1,792 268 82 202 55 22 2,421
Purchases 1 1
Purchases through acquired companies 3 6 3 12
Sales/disposals -32 -16 -27 -12 -87
Translation differences for the year -23 -9 -2 0 -34
Closing accumulated acquisition value 1,740 249 56 202 44 22 2,313
Opening depreciation – -143 -70 -48 -46 -14 -321
Sales/disposals 16 27 12 55
Depreciation for the year 1) -19 -2 -8 -3 -1 -33
Translation differences for the year 5 1 0 6
Closing accumulated depreciation – -141 -44 -56 -37 -15 -293
Opening write-downs -56 – – – – -5 -61
Sales/disposals 32 32
Translation differences for the year 3 3
Closing accumulated write-downs -21 – – – – -5 -26
Closing book value 1,719 108 12 146 7 2 1,994

1) Annual depreciation is reported in the following line of the income statement:

MSEK  2016  2015
Production costs -32 -33
Total -32 -33

Goodwill impairment testing in cash generating units

The balance sheet of the Peab Group 2016-12-31 included total goodwill of SEK 1,759 million (1,719). The table below shows goodwill per group of cash-generating units for which goodwill is tested for impairment.

MSEK 2016 2015
Construction    
Construction Sweden 68 68
Construction Finland 61 59
Construction Norway 159 144
Civil Engineering
Civil Engineering Sweden 146 140
Industry
Business area level, when repurchased by Peab 2008 1,274 1,270
Industry Sweden 16 3
Project Development
Property Development 21 21
Housing Development 14 14
Total 1,759 1,719

Goodwill write-downs

Group goodwill has not been written down in 2015 and 2016. For the cash generating units where a calculation of the recovery value was made and no write-down need was identified, executive management has assessed that no feasible possible changes in important assumptions would result in a recovery value lower than the reported value.

Method for calculating recovery value

The recovery value for the cash generating units has been based on calculation of useful value for all goodwill values. The calculation model is based on a discount of forecasted future cash flows compared to the unit’s reported values. These future cash flows are based on 5 year forecasts produced by the management of the respective group of cash generating units. Goodwill impairment tests have an infinite time horizon and extrapolation of cash flow for the years after the forecast was calculated based on a growth rate from year 6 onwards of approximately 2 percent.

Important variables when calculating useful value

The following variables are important and common to all cash generating units in calculation of useful value:

Sales: The business’ historical development, expected changes in the construction business cycle, general financial conditions, investment plans of public and municipal customers, interest rate levels and local market conditions.

Operating margin: Historic profitability levels and operative efficiency, access to key personnel and qualified manpower, access to internal resources, raises in salaries, materials and subcontractor costs.

Working capital requirements: Individual case assessment of whether the working capital reflects the company’s needs or whether it should be adjusted for the forecast period. A reasonable or cautious assumption for future development is that it parallels net sales growth. A high level of internally developed projects may entail a greater need for working capital.

Investment needs: The company’s investment needs are assessed on the investments required to achieve the initially forecasted cash flow, i.e. not including expansion investments.

Tax burden: The tax rate in forecasts is based on Peab’s expected tax situation in Sweden, Norway and Finland with regards to tax rates, loss carry-forwards etc.

Discount rate: Forecasted cash flows and residual values are discounted to current value applying a weighted average cost of capital (WACC). Interest rates on borrowed capital have been market adjusted to each country. The required return on equity is based on the Capital Asset Pricing Model. An after-tax weighted discount rate has been used in calculating useful value. The discount rate after tax used on cash generating units in Sweden is on average 7.8 percent (7.5), in Norway 10.2 percent (9.1) and in Finland 9.0 percent (8.2) The corresponding pre-tax discount in Sweden was on average 9.6 percent (9.6), in Norway 12.3 percent (10.9) and in Finland 11.4 percent (9.8).