Note 13 – Goodwill
Cash-generating units with goodwill
|Opening balance, January 1, 2015||314||67||231||616|
|Closing balance, December 31, 2015||314||17||227||558|
|Opening balance, January 1, 2016||314||17||227||558|
|Closing balance, December 31, 2016||314||17||231||562|
Cash generating units
The cash generating unit Sweden consists of the company BE Group Sverige AB and Lecor consists of Lecor Stålteknik AB. Both of these companies are included in Business Area Sweden & Poland. The cash generating unit Finland consists of the company BE Group Oy Ab, which is a part of Business Area Finland & Baltics.
Goodwill is tested for impairment at least once annually. This testing compares the recoverable amount with the carrying amount. The test done in 2015 led to an impairment of goodwill in Lecor of SEK 50 M. During the year, a new assessment was done, which as of the balance sheet date shows that no further impairment requirements existed.
The table above shows the difference between recoverable amount and carrying amount per cash flow generating unit. The recoverable amount of the cash generating units is determined by calculating their value in use. In calculating the value in use, a model is applied that is based on established business plans for 2017. These plans have then been adjusted so that any non-recurring effects or other exceptional effects are compensated with the aim of estimating a normalized cash flow. This has then been assumed to grow by 2 percent per year, which is expected to be in line with inflation. The carrying amount is equal to the respective company’s working capital at December 31. The carrying amount for Sweden was adjusted for the value of participations in joint ventures as this holding is subject to separate measurement (see Note 17).
For the calculation of value in use, estimated cash flows are discounted by a factor of 9.6 percent (9.6) before tax. The discount factor was determined using a model where the capital cost of the Company’s equity is weighed together with the cost of the Company’s interest bearing liability based on the debt/equity ratio. The cost of equity is assessed based on the risk-free interest rate, market and company-specific risk premium, and the Company’s assessed Beta value, which is a measurement of how the Company’s risk correlates to market risk. The Company has deemed that the same discount factor is applicable to all units in the Group.
A sensitivity analysis has been done where the variables included in the value-in-use model were changed and the effect on the recoverable amount was analysed. For the forecast cash flow, growth, growth margin, working capital tied-up and investments are important factors. For the valuation, the discount rate is also an important parameter. For the model, investments have been assumed to be on a par with depreciation and working capital tied-up is assumed to be on a par with the outcome for 2016. Except for Lecor where the outcome for 2016 was exceptionally week, profit margins are on a par with the 2016 outcome. For growth and discount factor, a negative change of 1 percent entails no further impairment requirements. The sensitivity for lower underlying profit margins is somewhat greater, but above all, Lecor must follow the set business plan to defend the book value.