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13. Intangible assets

 





Advances



Develop- paid and
2013
Intangible ment work
EUR million Goodwill rights costs in progress Total
Cost on 1 Jan 242.7 239.9 25.8 8.6 517.0
Translation differences -4.7 -6.7 0.1 0.3 -11.0
Acquired businesses - - - - 0.0
Sold businesses -0.4 -0.4 - - -0.8
Additions 0.7 0.9 - 4.6 6.1
Disposals - - - - 0.0
Transfers between items - 4.4 0.3 -4.4 0.3
Cost on 31 Dec 238.3 238.1 26.1 9.1 511.6






Accumulated amortization and impairment losses 1 Jan -55.8 -149.2 -24.9 - -229.8
Translation differences 2.8 2.9 - - 5.7
Sale of businesses - 0.3 - - 0.3
Amortization for the financial period - -21.9 -0.2 - -22.1
Impairments -5.3 -10.5 - -3.4 -19.1
Accumulated amortization on disposals and transfers - 3.6 - - 3.6
Accumulated amortization and impairment losses 31 Dec -58.3 -174.7 -25.1 -3.4 -261.5






Carrying amount on 1 Jan 186.9 90.8 0.9 8.6 287.1
Carrying amount on 31 Dec 180.0 63.4 1.0 5.7 250.1










Advances



Develop- paid and
2012
Intangible ment work
EUR million Goodwill rights costs in progress Total
Cost on 1 Jan 228.5 216.3 24.8 2.9 472.5
Translation differences -0.5 2.0 - - 1.5
Acquired businesses 14.7 15.4 - - 30.0
Sale of businesses - -10.3 - - -10.3
Additions - 21.6 1.0 10.6 33.2
Disposals - -5.0 - - -5.0
Transfers between items - - - -5.0 -5.0
Cost on 31 Dec 242.7 239.9 25.8 8.6 517.0






Accumulated amortization and impairment losses 1 Jan -56.8 -141.7 -24.8 - -223.3
Translation differences 1.0 -1.2 - - -0.2
Sale of businesses - 10.3 - - 10.3
Amortization for the financial period - -20.3 -0.1 - -20.3
Impairments - - - - 0.0
Accumulated amortization on disposals and transfers - 3.7 - - 3.7
Accumulated amortization and impairment losses 31 Dec -55.8 -149.2 -24.9 - -229.8






Carrying amount on 1 Jan 171.7 74.6 0.0 2.9 249.2
Carrying amount on 31 Dec 186.9 90.8 0.9 8.6 287.1






           

Intangible rights include customer relationships acquired in business combinations as well as brands, licenses, and computer software.

 

Goodwill allocation

 

Goodwill is allocated to the Group's cash-generating units (CGUs). During the third quarter the organization, control system and reporting structure of Itella Logistics was changed as part of Itella's performance improvement program published in April 2013. The management system changed from a global control into a country-specific control system. Consequently, the Group's cash-generating units were redefined.

 

In connection with redefining Itella Logistics' cash generating units, the goodwill formerly allocated to Road and Contract Logistics cash generating units was re-allocated to the new cash generating units. The re-allocation was made on basis of fair values of the CGUs, which were based on each CGU's recoverable cash flow. Goodwill has been allocated as follows:

 

EUR million


2013 2012
Itella Mail Communications


8.4 8.6
OpusCapita


100.9 101.2
Itella Logistics: Road


- 53.2
Itella Logistics: Air & Sea


- 5.3
Itella Logistics: Contract Logistics


- 18.6
Itella Logistics: Road and Air & Sea, Finland


57.8 -
Itella Logistics: Contract Logistics, Finland


12.9 -
Itella Logistics: Baltics


- -
Itella Logistics: Scandinavia


- -
Total 180.0 186.9






           

Prior to re-allocation of goodwill to the new cash generating units the Group carried out impairment tests in accordance with the previous structure. Based on the tests the Group recognized impairment losses on goodwill amounting to EUR 5.3 million and on intangible assets amounting to EUR 2.1 million in Logistics' Air & Sea business. The impairment was due to weakened outlook in the profitability and market share of the business.

 

The result of the goodwill impairment testing in 2013

 

In the third quarter of 2013, the Group performed an impairment test on every cash-generating unit containing goodwill. Testing was performed on the new cash generating units. Itella Group does not have other intangible assets with unlimited useful life. The impairment test did not result in recognition of impairment (in 2012, impairment test did not result in recognition of impairment).

 

Impairment testing and sensitivity analysis

 

The recoverable amount of the CGU's is based on the value-in-use method. The value-in-use is based on forecasted discounted cash flows. Cash flow forecasts are prepared for a three-year period and they are based on strategic plans. The forecasts and the assumptions about the development of the business environment are in line with the current business structure and approved by the management. The key assumptions influencing the cash flow forecasts are the long-term market growth, market positions and the profitability level. Investments are expected to be ordinary replacement investments. The tests were performed applying the euro-exchange rates of the foreign currencies on the testing date.

 

The terminal value beyond three years of cash-generating units is based on a moderate growth rate expectation of +0% – +2.0% (0% – +2.0%). The specific features of each cash-generating unit have been taken into account in the expectations.

 

Weighted average cost of capital (WACC) before taxes determined for each CGU has been used as discount rate. The calculation components are risk-free interest rate, market risk premium, beta for business area, target capital structure, the cost of debt and the country-specific risks. The basis for the risk-free discount rate was derived from the State bond rate. The discount rates increased in comparison with previous year.

 

The table below shows the key outcomes and the parameters used in testing. The corresponding figures for the previous period are given in parentheses, provided that the structure of the CGU in question has not changed.







Value-in-use EBIT Terminal
Terminal

exceeds margin growth
EBIT

carrying average 3 percentage Discount margin per

amount, % year*), % per year, % rate, % year, %
Itella Mail Communications 541 (336) 5.6 (4.5) 0.0 (0.0) 8.5 (7.0) 5.9 (4.9)
OpusCapita 209 (155) 8.7 (8.4) 2.0 (2.0) 8.8 (8.6) 8.0 (7.0)
Itella Logistics: Road and Air & Sea, Finland 185 3.7 2.0 8.9 4.8
Itella Logistics: Contract Logistics, Finland 40 13.4 2.0 8.9 16.3






           

*) The management forecast process has been changed permanently in 2013 and the length of the forecasted period is 3 years (in 2012 the forecast period was 5 years). 3-year forecast periods have been applied in impairment testing. The change of the forecast period is not estimated to have systematic effect in test results.

 

Preparation of a sensitivity analysis was not considered necessary with regard to Itella Mail Communications, OpusCapita, and the Road and Air & Sea cash generating units of Itella Logistics, since the recoverable amounts clearly exceeded the balance sheet value of the tested assets.

 

A sensitivity analysis was performed on the Contract Logistics, Finland cash generating unit by determining which key parameter values would produce a carrying amount that would equal the recoverable amount (value-in-use). The parameters used in the analyses were EBIT margin average, terminal year growth, discount rate and terminal EBIT margin per year. The analysis was carried out by changing the values of a single parameter while leaving the others constant. The table below indicates the limits within which the carrying amount and value-in-use are equal.

 



EBIT Terminal
Terminal


margin growth
EBIT


average 5 percentage Discount margin per


year, % per year, % rate, % year, %
Itella Logistics: Contract Logistics, Finland
9.7 -0.5 10.8 11.9