Goodwill and goodwill impairment testing

Goodwill, EUR million 2016 2015
Acquisition costs as of January 1 122.3 119.5
Transfer to asset held for sale -21.1 0.0
Translation difference -0.3 2.8
Acquisition costs as of December 31 100.9 122.3
Accumulated impairments as of January 1 -14.7 -14.7
Impairments for the financial year 0.0 0.0
Total as of December 31 86.2 107.6

General Principles

Management monitors the performance of the Group through the monthly meetings and monthly reporting that take place on a business unit level. Impairment testing is done at the lowest level of the Group at which goodwill is monitored internally.

Total goodwill in reportable segments after impairments, EUR million 2016 2015
Industrial Equipment 44.3 44.9
Lift trucks 12.1 12.6
Stahl CraneSystems* 0.0 20.4
Agilon 3.9 3.9
Goodwill in Equipment total 60.3 81.8
Port Service 10.7 10.7
Crane Service 10.7 10.7
Machine Tool Service 4.4 4.4
Goodwill in Service total 25.8 25.8
Total goodwill in reportable segments as of December 31 86.2 107.6
* The goodwill reported in Stahl CraneSystems is transferred to asset held for sale.

The recoverable amounts of the CGUs are determined based on value in use calculations using the discounted cash flow method. The forecasting period of cash flows is five years and it is based on financial forecasts of the management responsible for that CGU, and adjusted by Group management if needed. The forecasts have been made based on the CGU specific historical data, order book, the current market situation, and industry specific information of the future growth possibilities. These assumptions are reviewed annually as part of management’s budgeting and strategic planning cycles. Calculations are prepared during the fourth quarter of the year.

The discount rate applied to cash flow projections is the weighted average (pre-tax) cost of capital and is based on risk free long term government bond rates and market and industry specific risk premiums. These risk premiums are derived based on the business portfolio of companies which operate in a similar industry.

The key assumptions, being the average compound annual growth rate for the sales of the five years forecasted, and the discount rate are as follows:

Compound annual growth rate Discount rate
Industrial Equipment 5% 11.8%
Port Service 5% 13.1%
Machine Tool Service 5% 9.9%
Agilon* 57% 17.9%
Crane Service 5% 11.7%
Liftrucks 5% 10.3%
* The growth rate in CGU Agilon is 57% (104% in 2015) as the CGU is in a start-up phase.

The average compound growth rate for the gross profit is consistent with that of sales. Furthermore, for all the CGU’s a 1% terminal growth rate has been applied.

Impairment charges

The impairment testing performed in 2016 and 2015 did not result in any impairments being recognized.

Sensitivity analyses

In addition to impairment testing using the base case assumptions, four separate sensitivity analyses were performed for each CGU:
1) A discount rate analysis where the discount rate was increased by 5 percentage points
2) A Group management adjustment to the future profitability. The cash flow of each CGU was analyzed by the Group management. Based on the CGU specific historical data and future growth prospects the cash flows were decreased by 10% in each year including terminal year.
3) A higher discount rate (+5% points) analysis combined with lower (-10%) cash flows as mentioned above
4) A decrease in the compound annual growth rate for the sales for each five forecasted years (- 2% points) combined with the current discount rate.

2016

The recoverable value of CGU Machine Tool Service was EUR 7.0 million higher, the recoverable value of CGU Industrial Equipment was EUR 22.4 million higher and the recoverable value of CGU Agilon was EUR 0.8 million higher than the carrying value of the assets under impairment testing. Sensitivity tests using both higher discount rate (+5% points) and lower cash flow estimates (-10%) indicated that Machine Tool Service would have been impaired by EUR 0.3 million, the goodwill in Industrial Equipment would have been fully impaired, and the goodwill in Agilon would have been impaired by EUR 2.8 million. Sensitivity test for compound annual growth rate for the sales (-2% points) with the current discount rate indicated that the goodwill in CGU Machine Tool Service would have been impaired by EUR 1.4 million, goodwill in Industrial Equipment would have been fully impaired and goodwill in Agilon would have been impaired by EUR 1.7 million. The recoverable amount of EUR 15.4 million of Machine Tool Service would be the same as the carrying amount if the discount rate would be 5.7% points higher, or if the present value of the cash flows would be 45.4% lower. The recoverable amount of EUR 186.4 million of Industrial Equipment would be the same as the carrying amount if the discount rate would be 1.0% points higher, or if the present value of the cash flows would be 12.0% lower. The recoverable amount of EUR 6.8 million of Agilon would be the same as the carrying amount if the discount rate would be 1.2% points higher, or if the present value of the cash flows would be 12.0% lower. The forecasts of Machine Tool Service, Industrial Equipment and Agilon include also a specific key assumption for a decrease
of fixed costs. The recoverable amount of EUR 15.4 million of Machine Tool Service would be the same as the carrying amount if the EBITDA% would be 1.8% points lower, the recoverable amount of EUR 186.4 million of Industrial Equipment would be the same as the carrying amount if the EBITDA% would be 0.4% points lower and the recoverable amount of EUR 6.8 million of Agilon would be the same as the carrying amount if the EBITDA% would be 1.1% points lower. There was no indication of impairment of goodwill for any other CGU from the sensitivity tests.