Annual report 2016

10. Intangible assets


2016

     

EUR million

Goodwill

Intangible

rights

Develop-

ment

costs

Advances

paid and

work in

progress

Total other intangible assets

Cost January 1

249.1

219.4

30.3

15.2

264.9

Translation differences and other adjustments

-2.8

-0.3

  

-0.3

Acquired businesses

30.5

18.1

0.2

 

18.3

Sale of businesses

    

0.0

Additions

 

0.6

2.9

11.1

14.5

Disposals

    

0.0

Transfers between items

 

12.6

4.3

-16.9

0.0

Cost December 31

276.8

250.5

37.6

9.4

297.5

      

Accumulated amortization and impairment losses January 1

-63.1

-183.3

-27.5

-3.4

-214.2

Translation differences and other adjustments

    

0.0

Sale of businesses

    

0.0

Amortization for the financial period

 

-16.9

-1.4

 

-18.3

Impairments

  

-4.3

 

-4.3

Accumulated amortization on disposals and transfers

    

0.0

Accumulated amortization and impairment losses December 31

-63.1

-200.3

-33.2

-3.4

-236.8

      

Carrying amount on January 1

186.0

36.1

2.7

11.9

50.7

Carrying amount on December 31

213.7

50.2

4.4

6.1

60.7

      

2015, restated

     

EUR million

Goodwill

Intangible

rights

Develop-

ment

costs

Advances

paid and

work in

progress

Total other intangible assets

Cost January 1

246.2

218.9

29.1

9.2

257.3

Translation differences and other adjustments

-0.2

-4.9

  

-4.9

Acquired businesses

3.1

2.6

  

2.6

Sale of businesses

    

0.0

Additions

 

8.4

0.1

8.1

16.6

Disposals

 

-6.7

  

-6.7

Transfers between items

 

1.0

1.1

-2.1

0.0

Cost December 31

249.1

219.4

30.3

15.2

264.9

      

Accumulated amortization and impairment losses January 1

-63.1

-168.9

-25.6

-3.4

-197.9

Translation differences and other adjustments

 

1.9

  

1.9

Sale of businesses

    

0.0

Amortization for the financial period

 

-15.2

-0.9

 

-16.1

Impairments

 

-7.6

-1.054

 

-8.6

Accumulated amortization on disposals and transfers

 

6.6

  

6.6

Accumulated amortization and impairment losses December 31

-63.1

-183.3

-27.5

-3.4

-214.2

      

Carrying amount on January 1

183.1

50.0

3.5

5.9

59.4

Carrying amount on December 31

186.0

36.1

2.7

11.9

50.7

      

2014, restated

     

EUR million

Goodwill

Intangible

rights

Develop-

ment

costs

Advances

paid and

work in

progress

Total other intangible assets

Cost January 1

238.3

238.1

26.1

9.1

273.3

Translation differences and other adjustments

3.7

-16.8

  

-16.8

Acquired businesses

4.2

1.1

  

1.1

Additions

 

4.2

 

8.3

12.4

Disposals

 

-12.7

  

-12.7

Transfers between items

 

5.1

3.0

-8.1

0.0

Cost December 31

246.2

218.9

29.1

9.2

257.3

      

Accumulated amortization and impairment losses January 1

-58.3

-174.7

-25.1

-3.4

-203.2

Translation differences and other adjustments

-4.8

10.6

  

10.6

Amortization for the financial period

 

-16.0

-0.5

 

-16.6

Impairments

 

-1.4

  

-1.4

Accumulated amortization on disposals and transfers

 

12.7

  

12.7

Accumulated amortization and impairment losses December 31

-63.1

-168.9

-25.6

-3.4

-197.9

      

Carrying amount on January 1

180.0

63.4

1.0

5.8

70.1

Carrying amount on December 31

183.1

50.0

3.5

5.9

59.4

      

Intangible rights include customer portfolios acquired in business combinations as well as licenses and applications.

      

Goodwill and impairment testing

      

Posti has made significant investments in goodwill and other intangible assets including IT systems, licences, acquired trademarks and customer portfolios as well as in property, plant and equipment comprising mainly vehicles and other production equipment. Most significant goodwill balance subject to the annual impairment testing is allocated to OpusCapita, one of Posti’s cash-generating units that have goodwill on their balance sheets. Goodwill and intangible assets not yet in use are tested for impairment annually or more often if indicators of impairment exist, whereas other assets are tested for impairment when circumstances indicate there may be a potential impairment.

      

The determination of impairments of goodwill and other intangible assets involves the use of estimates and is one of the critical accounting policies where the managment makes estimates and judgments. This has been described in the accounting principles under the section "Critical accounting estimates and judgments in applying accounting policies."

      

Goodwill is allocated to the Group's cash-generating units (CGUs) as follows:

      

EUR million

  

2016

2015

2014 *)

Postal Services

  

44.1

44.1

44.1

OpusCapita

  

122.7

107.1

104.1

Parcel and Transportation Services

  

32.7

21.8

22.0

Supply Chain Solutions

  

12.9

12.9

12.9

MaxiPost

  

1.2

0.0

0.0

Total

  

213.7

186.0

183.1

*) Restated to correspond the revised CGU-structure

      

The result of the goodwill impairment testing in 2016

      

Posti has performed the annual impairment tests for each cash-generating units containing goodwill. The Group does not have other intangible assets with indefinite useful life. The impairment tests 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 five-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 five years of cash-generating units is based on a moderate growth rate expectation of 1.0% (2015: 1.0%, 2014: 1.0%) with the exception of Postal Services where the estimated terminal growth rate is -5% (2015: -5%, 2014: -5%) due to expected decline in paper delivery volumes and MaxiPost where the rate is 3% (2015 and 2014: n/a) to reflect the higher inflation in Russia.

      

Weighted average cost of capital (WACC) before taxes determined for each CGU has been used as discount rate. Pre-tax discount rates reflect specific risks relating to the relevant CGUs. The discount rates increased slightly in comparison with previous year which is mainly attributable to higher market risk premium for Finland.

      

The key outcomes and the parameters used in testing

      

2016

     
 

Value-in-use

exceeds

carrying

amount, MEUR

EBIT

margin

average, %

Terminal

growth

rate, %

Discount

rate, %

Terminal

year EBIT

margin, %

Postal Services

299

8.3

-5.0

7.1

7.0

OpusCapita

64

5.4

1.0

9.3

7.6

Parcel and Transportation Services

127

2.0

1.0

7.0

2.6

Supply Chain Solutions

13

3.0

1.0

7.0

5.2

MaxiPost

3

1.8

3.0

14.5

11.7

      

2015

     
 

Value-in-use

exceeds

carrying

amount, MEUR

EBIT

margin

average, %

Terminal

growth

rate, %

Discount

rate, %

Terminal

year EBIT

margin, %

Postal Services

460

8.6

-5.0

6.8

7.0

OpusCapita

172

6.4

1.0

8.2

8.2

Parcel and Transportation Services

296

1.1

1.0

7.2

2.6

Supply Chain Solutions

92

10.3

1.0

6.9

11.9

      

2014

     
 

Value-in-use

exceeds

carrying

amount, MEUR

EBIT

margin

average, %

Terminal

growth

rate, %

Discount

rate, %

Terminal

year EBIT

margin, %

Postal Services

229

8.3

-5.0

6.9

5.0

OpusCapita

359

9.8

2.0

7.6

10.5

Parcel and Transportation Services

109

-2.2

2.0

6.8

3.0

Supply Chain Solutions

29

7.7

2.0

7.0

7.8

      

Comparative data for 2014 restated to correspond the revised CGU-structure in 2015.

      

A sensitivity analysis was performed for those cash-generating units where the Group estimates that a reasonably possible change in the key assumptions could cause recognition of an impairment loss. The analysis was done by determining which key parameter values would produce a carrying amount that would equal the value-in-use. The parameters used in the analysis were the discount rate and the terminal year EBIT margin. 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.

      
    

Discount

rate, %

Terminal

year EBIT

margin, %

Supply Chain Solutions

   

8.4

4.3

OpusCapita

   

12.5

4.5

 

     

The sensitivity analyisis has not been prepared for Postal Services, Parcel and Transportation Services and MaxiPost as the management has considered and assessed reasonably possible changes for key assumption and has not identified any instances that could cause the carrying amounts of the CGUs to exceed their recoverable amounts.