Review of 2010 – USD version - Skanska

Note
18 Goodwill
Goodwill is recognized in compliance with IFRS 3, “Business Combinations.” See Note 1,
“Accounting and valuation principles.” For key judgments, see Note 2.
Goodwill according to the statement of financial position amounted to USD 575.8 M
(607.0) and was mainly attributable to acquisitions during 2000, when Skanska acquired
goodwill through acquisitions of businesses in Norway, the U.K. and the Czech Republic.
During 2010, goodwill changed by USD 0.0 M (0.7) through acquisitions. In 2009 one
small unit in Finland was acquired. See Note 7, “Business combinations.”
Goodwill value by business unit
2010 2009 Change during the year
of which
exchange rate
differences
Construction
Norway 150.1 152.3 –2.3 –2.3
of which
reclassifications
of which
impairment loss
Finland 42.2 61.2 –19.0 –4.7 0.7 –15.0
Poland 2.6 2.6 0.0 0.0
Czech Republic 70.6 73.2 –2.6 –2.6
United Kingdom 198.1 203.5 –5.4 –5.4
USA Building 40.6 40.6 0.0 0.0
USA Civil 3.6 3.6 0.0 0.0
Residential Development
Nordic 68.1 69.8 –1.8 –1.1 –0.7
Total 575.8 607.0 –31.1 –16.1 0.0 –15.0
of which acquisition goodwill in
Group financial statements
Construction
Norway 148.0 150.3
Finland 21.9 23.7
Czech Republic 58.2 60.4
United Kingdom 157.4 161.7
Residential Development
Nordic 67.3 68.4
Total 452.9 464.4
In Construction and Residential Development, the goodwill recoverable amount is
based exclusively on value in use. Goodwill value together with other non-current asset,
current-asset property and net working capital values are tested annually.
Expected cash flows are based on forecasts for each submarket in the countries
where the Group has operations. For Construction, these forecasts include such variables
as demand, cost of input goods, labor costs and the competitive situation. Residential
Development establishes forecasts for the various segments of its operations.
Important variables taken into account include demographic and interest rate trends.
The forecasts are based on previous experience, Skanska’s own assessments and
external sources of information. The forecast period encompasses three years. The
growth rate that is used to extrapolate cash flow forecasts beyond the period covered
by the three-year forecasts is the normal growth rate for the industry in each respective
country. Normally, two percent has been used.
Each unit uses a unique discount factor based on weighted average cost of capital
(WACC). Parameters that affect the WACC are interest rates for borrowing, market risks
and the ratio between borrowed funds and equity. For Construction units, a WACC is
stated on the basis of capital employed consisting 100 percent of equity. In Residential
Development, the WACC is based on capital employed consisting of 50 percent equity
and 50 percent borrowed funds. The WACC interest rate is stated before taxes.
The following table shows how the carrying amount relates to the recoverable amount
for the respective business units for Skanska’s largest goodwill items, which are tested
at the Group level. The carrying amount is expressed as 100. The tests are based on an
assessment of developments during the coming three-year period.
Norway
Construction operations
Finland
Czech
Republic
United
Kingdom
Residential
Development
Nordic
Recoverable amount, 100 100 100 100 100 100
Carrying amount 1 8 4 63 n.a 32
Interest rate, percent (WACC) 8.6 8.9 9.3 8.6 5.1
Carrying amount in relation
to recoverable amount, 100
in case of increase in
interest rate
+ 1 percentage point 10 5 69 n.a 46
+ 5 percentage point 2 16 8 89 n.a 132
1 For Skanska’s operations in the United Kingdom, the carrying amount was negative due to a
negative working capital that exceeds the value of non-current assets.
2 Value > 100 indicates that the recoverable amount is less than the carrying amount and an
impairment loss needs to be recognized.
124 Notes, including accounting and valuation principles Skanska Review of 2010 – USD version