saxo-bank-annual-report-2015

NOTES – SAXO BANK GROUP
Note (DKK 1,000)
19 Impairment test · continued
Impairment test results 2014
The impairment tests in 2014 resulted in recognition of total impairment losses of DKK 111 million on goodwill.
DKK 75 million related to the investment in Banco Best S.A. where Saxo Bank held a 25% ownership in the company. Due to accounting
irregularities and a negative financial situation in Banco Espírito Santo, S.A, who held the 75% shares in Banco Best S.A an intervention
was made by the Banco de Portugal. The healthy business and assets of Banco Espírito Santo, S.A. were in 2014 transferred to Novo
Banco. The transfer of assets included Banco Espírito Santo, S.A.’s 75% ownership in Banco Best S.A. Consequently, 75% of Banco Best
was owned by Novo Banco. The impairment loss was mainly attributable to uncertainties related to net profit in the period over which
the net profit was expected to normalise. The recoverable amount was DKK 56 million 31 December 2014 based on value in use. A discount
rate of 11.7% was applied.
Furthermore, an impairment loss of DKK 25 million was recognised on goodwill attributable to uncertainties related to future
net profit in none significant entities within the Group. The recoverable amount was DKK 5 million 31 December 2014 based on value in
use. Discount rates applied was in the range 11.5%-14.9%.
In June 2014 an impairment loss of DKK 11 million was recognised on goodwill related to the investment in Leverate Technological
Trading Ltd. The impairment loss was attributable to indications of a net recoverable amount below carrying amount. The investment
(25% ownership) was divested in December 2014 and no further impairment loss was recognised.
Key assumptions
Following the impairment loss of DKK 50 million on the investment in Saxo (Switzerland) AG there is no excess value as the carrying
amount of the investment is written down to the recoverable amount. The carrying amount of goodwill is as at 31 December DKK 379
million. The carrying amount of goodwill related to Saxo Bank (Switzerland) AG represents 40% (2014: 57%) of the total goodwill.
The net profit for 2015 for Saxo (Switzerland) AG was negatively affected by the Swiss event, note 2 provides further details on the
Swiss event. In the impairment test an annual revenue growth of 7% year on year for 2016-2020 compared to the revenue for 2015
(adjusted for the affect of the Swiss event) and the cost as in the Anchor Forecast for 2016 with a growth of 2.0% year on year for
2017-2020 is applied. In the terminal period a growth rate of 0.6% is applied. A sensitivity analysis shows that if the growth in revenue
for 2016 decline to 6% it would indicate an additional impairment of DKK 13 million or if the discount rate post tax increase from 6.9%
to 7.4% it would indicate an additional impairment of DKK 55 million all other things being equal.
The carrying amount of goodwill related to Saxo Privatbank A/S represents 26% (2014: 25%) of the total goodwill. The cash flow projections
for Saxo Privatbank A/S are based on a 7 year forecast period, as the growth projected in the business plan is expected to normalise
beyond 5 years. However, if a forecast period of 5 years was applied, the calculated recoverable amount still exceeds the carrying
amount.
An improvement in net profit is expected for Saxo Privatbank A/S for 2016. The expected development is primarily due to increase in
Assets under management, effect of new branches, increase in interest income and a steady cost base. The expected growth in revenue
for 2016 is approximately 10%. For the period 2016-2022 the net profit is expected to increase in average 6% year on year, with a decreasing
percentage. A sensitivity analysis has been performed and if the estimated growth in net profit for the period 2016-2022 only
reaches 85% of the expected growth in net profit each year, the recoverable amount still exceeds the carrying amount of the investment.
In the terminal period a growth rate of 1.98% is applied. A sensitivity analysis shows that if the growth rate in the terminal period decline
from 1.98% to negative growth of 1.2% (2014: from 2.1% to negative 3.5%), or the discount rate post tax increase from 8.5% to
10.5% (2014: from 8.0% to 11.3%) the excess value would be zero.
Except for Saxo Bank (Switzerland) AG management assess that no reasonable possible change in one of the key assumptions above, on
which management has based its determination of the recoverable amount of goodwill, would cause recognition of an impairment loss.
However the key assumptions may change as market conditions or the regulatory environment change.
Intangible assets other than goodwill and property, plant and equipment
Other intangible assets than goodwill and property, plant and equipment are tested if there are indications of impairment.
In 2015 impairment losses of DKK 84 million (2014: DKK 0 million) was recognised, related to a number of investments in software due
to change in future use and uncertainties related to future economic benefit. The recoverable amount of the impaired software was DKK
0 million.
SAXO BANK · ANNUAL REPORT 2015 · 69