Note 15 Intangible fixed assets

Intangible fixed assets, external purchase Intangible fixed assets, internally developed
Group 2017, MSEK Goodwill Brands Customer relations Tenancies gravel and rock quarries Other intangible assets Balanced development costs Total
Opening acquisition value  1,783 263 61 202 28 22 2,359
Purchases 39 17 56
Purchases through acquired companies 67 54 6 127
Sales and disposals -5 -10 -15
Exchange rate differences  -6 -6 -12
Closing accumulated acquisition value  1,844 306 51 202 73 39 2,515
Opening depreciation -155 -46 -64 -13 -16 -294
Sales and disposals 5 10 15
Depreciation 1) -16 -3 -8 -4 -1 -32
Reclassifications 1 1
Exchange rate differences 3 3
Closing accumulated depreciation  – -163 -39 -72 -17 -16 -307
Opening write-downs -24  –  –  –  – -5 -29
Write-downs 2) -11 -11
Reclassifications -1  -1
Closing accumulated write-downs -24 -11  –  –  -6 -41
Closing recognized value 1,820 132 12 130 56 17 2,167

 

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 Balanced development costs 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
Exchange rate differences  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 1)  -18  -3  -8  -2  -1  -32
Exchange rate differences  -4  -1  -5
Closing accumulated depreciation -155 -46 -64 -13 -16 -294
Opening write-downs -21 -5 -26
Exchange rate differences  -3  -3
Closing accumulated write-downs -24 -5 -29
Closing recognized value 1,759 108 15 138 15 1 2,036

 


1) Depreciation is reported in the following lines of the income statement:

MSEK 2017  2016
Production costs  -31 -32
Sales and administrative expenses -1
Total -32 -32

 

2) Write-downs are reported in the following line of the income statement:

MSEK 2017 2016
Production costs -11
Total -11

Goodwill impairment testing in cash generating units

The Peab Group balance sheet 2017-12-31 included total goodwill of SEK 1,820 million (1,759). The table below shows goodwill per group of cash generating units for which goodwill is tested for impairment.

MSEK 2017 2016
Construction  
Construction Sweden  68 68
Construction Finland  63 61
Construction Norway  151 159
Civil Engineering
Civil Engineering Sweden  171 146
Industry
Business area level, when repurchased by Peab 2008  1,274 1,274
Industry Sweden  51 16
Project Development
Property Development Sweden  21 21
Housing Development Sweden  14 14
Housing Development Norway 7  –
Total  1,820 1,759

Goodwill write-downs

Group goodwill has not been written down in 2017 or in 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 recognized value.

Method for calculating recovery value

The recovery value for all goodwill values has been derived by calculating the useful value for the cash generating units. 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:

Net sales: The business’ historical development, expected changes in the construction business cycle, general socioeconomic developments, 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 and hikes in salary, material 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. A weighted discount rate after tax has been used in calculating useful values. The discount rate after tax used on cash generating units in Sweden is on average 8.7 percent (7.8), in Norway 9.4 percent (10.2) and in Finland 9.2 percent (9.0) The corresponding pre-tax discount in Sweden was on average 8.8 percent (9.6), in Norway 9.4 percent (12.3) and in Finland 9.3 percent (11.4).

Intangible fixed assets, external purchase Intangible fixed assets, internally developed
Parent company 2017, MSEK Other intangible assets Balanced development costs Total
Opening acquisition value  –  –
Purchases 22 17 39
Closing accumulated acquisition value 22 17 39
Opening depreciation  –  –
Depreciation 1) -1 -1
Closing accumulated depreciation  – -1 -1
Closing recognized value  22 16 38

 

1) Depreciation is reported in the following line of the income statement:
MSEK 2017
Administration expenses -1
Total -1