Annual Report 2008 - Securitas

Impairment testing
For the purpose of impairment testing, assets are grouped at the lowest
levels for which there are separately identifiable cash flows (Cash Generating
Unit), that is, per country in a business segment.
GOODwILL PEr DEcEMBEr 31, 2008 IS DISTrIBUTED
PER SEGMENT AS FOLLOWS:
MSEK 2008 2007 2006
Security Services North America 6,680.4 5,514.5 5,890.6
Security Services Europe 4,995.0 3,980,1 3,981.7
Mobile and Monitoring 2,049.2 1,595.1 1,637.7
Other 379.7 170.7 19.5
Discontinued operations – 2,533.1 2,502.1
Total goodwill 14,104.3 13,793.5 14,031.6
Goodwill is tested on an annual basis for possible impairment. An impairment
loss is recognized for the amount by which the asset’s carrying
amount exceeds its recoverable amount. The recoverable amount is the
higher of an asset’s fair value less costs to sell and value in use.
Value in use is measured as expected future discounted cash flows. The
cash flows have been based on financial plans developed in each country
and business segment. The plans have been ascertained by Group Management
and have been approved by the Board of Directors. These plans normally
cover a forecasted period of five years. Cash flows beyond this point
have been extrapolated using an estimated growth rate of two percent for
all countries and business segments. This growth rate is estimated to be
compatible with the underlying growth rates in those countries in which the
Group operates.
A long-term growth rate of two percent for Security Services is at present
regarded as being a cautious estimate in view of this business area’s historical
organic growth rate and also taking into consideration external estimates of
the future; Freedonia for example, estimates that the market for Guarding
Services in Europe will grow at an average rate of some six percent per annum
during the period 2012 to 2017. The corresponding figure for the North
America market is around five percent. The market for Mobile and Monitoring
in Europe is estimated to grow faster than traditional guarding.
The estimate for the value in use is based on assumptions and estimates
in addition to the estimated growth after the forecasted period. The most
significant of these relate to the organic sales growth, the development of
the operating margin, the change in operating capital employed, as well as
the relevant wAcc (weighted Average cost of capital) rate used to discount
the future cash flows.
THE ASSUMPTIONS AND ESTIMATES THAT HAvE FOrMED THE BASE FOr
THE IMPAIrMENT TESTING ArE SHOwN IN SUMMAry AND By SEGMENT
ACCORDING TO THE FOLLOWING:
Assumptions and estimates 2008
Estimated growth
rate beyond forecasted
period, % WaCC, %
Security Services North America 2.0 7.6–11.4
Security Services Europe 2.0 7.3–11.1
Mobile and Monitoring 2.0 8.1–9.6
Other 1 2.0 9.5–15.2
Assumptions and estimates 2007
Security Services North America 2.0 8.3–10.8
Security Services Europe 2.0 7.3–10.0
Mobile and Monitoring 2.0 8.1–9.2
Other 1 2.0 9.4–12.6
Assumptions and estimates 2006
Security Services North America 2.0 8.6–11.8
Security Services Europe 2.0 7.2–20.5
Mobile and Monitoring 2.0 7.2–8.9
1 The operations in Latin America and Asia are included in Other.
The impairment testing of all cash Generating Units took place during the
third quarter 2008 when the business plans for 2009 were being prepared.
The result of the testing showed that there is no impairment of goodwill.
Consequently, no impairment losses regarding goodwill have been recognized
in 2008. In 2007, impairment losses of goodwill amounted to MSEK –350
in Security Services Europe and Mobile and Monitoring.
The following sensitivity analyses have been made of the estimates of
value in use in connection with impairment testing: general reduction of
1 percentage point in the organic sales growth rate during the forecasting
period; general reduction of 0.5 percentage points in the operating margin;
general increase of 0.5 percentage points in the wAcc; general decrease of
the estimated growth after the forecasted period by 0.5 percentage points.
The sensitivity analyses showed that none of the adjustments stand alone
would result in an impairment loss in any cash Generating Unit.
Note 17. Goodwill
Annual report
Notes and comments to the consolidated financial statements
MSEK 2008 2007 2006
Opening balance 14,151.7 14,072.8 17,792.4
capital expenditures, continuing
operations 800.3 376.1 253.0
capital expenditures, discontinued
operations – – 29.4
Divestitures – –39.3 –
Discontinued operations –3,024.0 – –2,513.5
Translation difference 2,591.3 –257.9 –1,488.5
Closing accumulated balance 14,519.3 14,151.7 14,072.8
Opening impairment losses –358.2 –41.2 –
Impairment losses,
continuing operations 1 – –349.9 –
Impairment losses,
discontinued operations 1 – – –41.2
Divestitures – 39.3 –
Translation difference –56.8 –6.4 –
Closing accumulated
impairment losses –415.0 –358.2 –41.2
Closing residual value 14,104.3 13,793.5 14,031.6
1 Further informaton is provided in Note 16 under impairment testing. The amount in year 2006 was
recognized as an item affecting comparability, and is now included on the line Net income for the year,
discontinued operations in the statement of income.
Securitas Annual report 2008
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