Annual Report 2008 - 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 balance sheet amounted to SEK 4,442 M (4,584) 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
2008, goodwill increased by SEK 4 M (45) through acquisition of one small unit in
Finland. See Note 7, “Business combinations.”
Goodwill value by business unit
2008 2007
Change during
the year
of which
exchange rate
differences
Construction
Norway 980 1,048 –68 –68
of which
acquisition
of companies 1
of which
divestment
activities
Finland 461 397 64 63 4 –3
Poland 20 20 0 0
Czech Republic 554 478 76 76
United Kingdom 1,635 1,877 –242 –242
USA Building 313 261 52 52
USA Civil 28 23 5 5
Residential Development
Nordic countries 451 480 –29 –29
Total 4,442 4,584 –142 –143 4 –3
of which acquisition goodwill in
Group financial statements 2008 2007
Construction
Norway 967 1,033
Finland 181 156
Czech Republic 457 395
United Kingdom 1,142 1,311
Residential Development
Nordic countries 440 470
Total 3,187 3,365
1 See Note 7, “Business combinations.”
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 n.a. 1 16 n.a. 67
Interest rate, percent (WACC) 10.1 10.4 10.6 10.1 8.2
Carrying amount in relation
to recoverable amount,
100 in case of increase in
interest rate
+ 1 percentage point n.a. 1 18 n.a. 84
+5 percentage points 2 n.a. 1 26 n.a. 173
1 For Skanska’s operations in Norway and the United Kingdom, the carrying amount was
negative due to a negative working capital that exceeds the value of property, plant and
equipment.
2 Value > 100 indicates that the recoverable amount exceeds the carrying amount and an
impairment loss needs to be recognized.
106 Notes, including accounting and valuation principles Skanska Annual Report 2008