Note 12 – Goodwill
Cash-generating units with goodwill
|Opening balance, January 1. 2018||Ingående balans 2018-01-01||314||238||552|
|Closing balance, December 31. 2018||Utgående balans 2018-12-31||314||249||563|
|Opening balance, January 1. 2019||Ingående balans 2019-01-01||314||249||563|
|Closing balance, December 31. 2019||Utgående balans 2019-12-31||314||252||566|
Cash generating units
The cash generating unit Sweden consists of the company BE Group Sverige AB, which is part of business area Sweden & Poland. The Finland cash generating unit 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. Impairment testing was updated at December 31 and no impairment requirement in other cash-generating units was identified.
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 2020. 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.
For the calculation of value in use, estimated cash flows are discounted by a factor of 10.8 percent (10.8) 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 forecasted 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 in line with depreciation and working capital tied-up is assumed to be in line with the outcome for 2019. The profit margin assumed in the model is also in line with the outcome for 2019. In the sensitivity analysis, the discount rate has been adjusted with +1 percent and growth has been adjusted with -1 percent, which shows that no further impairment requirements are needed. The sensitivity for lower underlying profit margins is slightly higher.