18 INTANGIBLE ASSETS

EUR 1,000 Goodwill Intangible rights Other capitalised expenditure Advance payments Total
Acquisition cost, 1 Jan 2013 77,116 11,653
18,053
10,934 117,757
Translation difference -2,006 -18
-795  
-2,819
Increases   660
425
7,810 8,895
Increases from acquired businesses 5,396 2,173
678  
8,247
Disposals -526 -378
 
-1,144 -2,048
Transfers between items   9,689
 
-9,689  
Acquisition cost, 31 Dec 2013 79,980 23,779
18,362
7,911 130,033








Accumulated amortisation and impairment,
1 Jan 2013
-73 -5,536
-8,433  
-14,043
Translation difference 193 6
399  
598
Accumulated amortisation on increases    
-50  
-50
Accumulated amortisation on disposals   324
   
324
Amortisation for the financial year from continuing operations
-3,986
-3,543

-7,529
Accumulated amortisation and impairment,
31 Dec 2013
120 -9,192
-11,627  
-20,699








Carrying amount 31 Dec 2013 80,100 14,588
6,735
7,911 109,334
Carrying amount 1 Jan 2013 77,043 6,117
9,620
10,934 103,714








EUR 1,000 Goodwill Intangible rights Other capitalised expenditure Advance payments Total
Acquisition cost, 1 Jan 2012 85,766 10,099
18,041
3,202 117,108
Translation difference 704 1
343  
1,047
Increases   3,352
831
11,532 15,715
Increases from acquired businesses 1,304 229
   
1,532
Disposals   -2,949
-408
-1,974 -5,331
Discontinued operations -10,657 -865
-805  
-12,327
Transfers between items   1,786
51
-1,826 12
Acquisition cost, 31 Dec 2012 77,116 11,653
18,053
10,934 117,757








Accumulated amortisation and impairment,
1 Jan 2012
-73 -7,114
-5,516
  -12,703
Translation difference   13
-121
  -108
Accumulated depreciation on increases   -12
 
  -12
Accumulated amortisation on disposals   2,825
408
  3,233
Accumulated amortisation on discontinued operations
626
396

1,022
Amortisation for the financial year from continuing operations   -1,828
-3,546
  -5,375
Amortisation for the financial year from discontinued operations   -46
-54
  -100
Accumulated amortisation and impairment,
31 Dec 2012
-73 -5,536
-8,433
  -14,043
     
       
Carrying amount 31 Dec 2012 77,043 6,117
9,620
10,934 103,714
Carrying amount 1 Jan 2012 85,693 2,985
12,526
3,202 104,405

 

At the end of 2013, other capitalised expenditure included EUR 9.2 million (EUR 0.0 mill.) and advance payments EUR 5.5 million (EUR 7.5 mill.) of capitalised computer software development costs.

Goodwill

At the date of acquisition goodwill is allocated to cash-generating units, or groups of cash-generating units, that is expected to benefit from synergies arising from the business combination.

Goodwill by segment

EUR 1,000 Finland Other Nordic countries Eastern Europe and the Baltic states Other countries Market areas, total Common to segment * Total
31 Dec 2013






International Operations   17,066 1,909 139 19,114 23,469 42,583
Building Construction 6,196       6,196   6,196
Infrastructure Construction 6,158       6,158   6,158
Technical Building Services 25,164       25,164   25,164
  37,518 17,066 1,909 139 56,632 23,469 80,100








EUR 1,000 Finland Other Nordic countries Eastern Europe and the Baltic states Other countries Market areas, total Common to segment * Total
31 Dec 2012          

International Operations
16,349 2,309 501 19,159 24,270 43,429
Building Construction 6,084       6,084   6,084
Infrastructure Construction 2,366       2,366   2,366
Technical Building Services 25,164       25,164   25,164
  33,614 16,349 2,309 501 52,773 24,270 77,043

* The goodwill reported in the ”Common to segment” column has arisen from the asphalt business acquisitions in Denmark and Norway. It is allocated to the International Operations' Baltic Rim region paving and mineral aggregates cash generating unit. This goodwill has been tested for impairment at the level of the whole International Operations' Baltic Rim region paving and mineral aggregates cash generating unit. In addition, the goodwill allocated to each business area has been tested separately for each country.

Goodwill impairment tests

Goodwill is tested for impairment annually and whenever there are indications of possible impairment. The tests are carried out as value-in-use calculations of individual businesses in accordance with the smallest cash-generating unit principle. In impairment testing the discounted present value of the recoverable cash flows of each cash-generating unit is compared with the carrying amount of the unit in question. If the present value is lower than the carrying amount, the difference is recognised through profit or loss as an expense in the current year.

In 2013, the impairment tests were carried out during the third quarter of the year. The tests showed that the current values of the future cash flows exceed the book values in all business units. Therefore, there was no need for impairment of goodwill in 2013.

Forecasts and key assumptions used in goodwill impairment testing

Cash flow calculations of the cash generating units are prepared for a planning period covering the next 5 years in accordance with the management’s estimates. These estimates are based on past experience. Cash flow forecasts beyond that planning period are based on the cautious assumption of 1 percent annual growth. This was lower than European Central Bank's inflation rate forecast over the medium term, in effect at the time of impairment testing.

The Weighted Average Cost of Capital (WACC), calculated for each individual unit, is used as the discount factor. WACC takes into account the risk-free interest rate, the liquidity premium, the expected market rate of return, the industry’s beta value, country risk and the debt interest rate, including the interest rate margin. These components are weighted according to the fixed, average target capital structure of the sector. Pre-tax WACC is determined seperately for each tested unit.

The business segment specific weighted averages of the key assumptions used in the value-in-use calculations are presented in the table below *

EUR 1,000


International Operations Building Construction Infrastructure Construction Technical Building Services
2013






Discount rate, % (before taxes) 8.3 6.7 7.1 7.1
Average growth rate of net sales, % ** 13.4 5.1 2.2 3.5
Long-term average growth rate, % 1.0 1.0 1.0 1.0








2012






Discount rate, % (before taxes) 7.1 6.9 7.4 6.7
Average growth rate of net sales, % 4.1 0.4 1.9 3.0
Long-term average growth rate, % 1.0 1.0 1.0 1.0

* The figures should not be regarded as forecasts for the entire business segment since the averages are calculated only for the cash-generating unit to which the goodwill has been allocated. When calculating the average, the differences in the size of the cash-generating units are taken into account by weighting the figures according to the net sales of the units.

** The change in the International Operation’s average growth rate of net sales is mainly due to building construction business in Russia.

Sensitivity analysis

In connection with the impairment tests, sensitivity analyses are made to determine how possible changes in key assumptions of the unit-specific impairment tests would affect the results of those tests. The key assumptions affecting the present value of cash flows are the development of market and competitive conditions, the scope and profitability of the tested business, and the discount factor. In the sensitivity analyses the calculation variables affecting these assumptions are varied and the effects of the changes on the margin between the carrying value and present value of the cash flows are examined.

Sensitivity analysis showed that reasonable and ordinary variation to key counting assumptions common to Lemminkäinen’s business areas would not cause a need for a significant impairment. Most of The Group’s recognised goodwill belongs to the International Operations segment arising from the acquisitions of the Nordic paving units and to the Technical Building Services segment. Margins between the current values of cash flows and the book values are wide in the Baltic Sea area paving and mineral affregates as well as the Technical Building Services. Of the tested cash generating units, most sensitive for changes is the Infrastructure segment’s mineral affregates unit. There is risk for an impairment of goodwill less than EUR 0.9 million for this unit. Additional tests for impairment are carried out if the sensitivity tests or possible changes in the future expectations merit them. Long term predictability of the Lemminkäinen’s business units is reasonably good and the risk for the impairment of goodwill is small.

Figures describing the goodwill impairment risk of units subject to impairment testing by business segment are presented below.


International Operations Building Construction Infrastructure Construction Technical Building Services
2013



Goodwill allocated to the business sector, total 42,583 6,196 6,158 25,164
Ratio of present value to carrying amount * 3.79 1.50 3.81 1.96
Goodwill impairment if annual growth over the




long term were 1 percentage point lower 0 0 879 0

long term were 2 percentage points lower 0 0 879 0
Goodwill impairment if the dicount rate




were half a percentage point higher 0 0 879 0

were one percentage point higher 0 0 879 0






International Operations Building Construction Infrastructure Construction Technical Building Services
2012



Goodwill allocated to the business sector, total 43,429 6,084 2,366 25,164
Ratio of present value to carrying amount * 3.40 1.90 1.60 4.30
Goodwill impairment if annual growth over the




long term were 1 percentage point lower 0 0 879 0

long term were 2 percentage points lower 0 0 879 0
Goodwill impairment if the dicount rate




were half a percentage point higher 0 0 879 0

were one percentage point higher 0 0 879 0

* Net-sales-weighted average of the business sector’s cash-generating units subject to impairment testing. Ratio less than 1 would result in impairment.