Year 2017

10. Intangible assets

 

2017

         

EUR million

Goodwill

Intangible

rights

Develop-

ment

costs

Advances

paid and

work in

progress

Total other intangible assets

Cost January 1

276.8

250.5

37.6

9.4

297.5

Translation differences and other adjustments

 

-2.7

   

-2.7

Acquired businesses

0.9

4.1

   

4.1

Business divestments

 

-0.9

   

-0.9

Additions

 

5.7

0.2

7.5

13.3

Disposals

 

-3.3

   

-3.3

Transfers between items

 

0.2

-0.2

-0.1

0.0

Cost December 31

277.6

253.6

37.6

16.8

308.0

           

Accumulated amortization and impairment losses January 1

-63.1

-200.3

-33.2

-3.4

-236.8

Translation differences and other adjustments

 

2.4

   

2.4

Business divestments

       

0.0

Amortization for the financial period

 

-17.1

-1.5

 

-18.6

Impairments

-33.9

-1.2

   

-1.2

Accumulated amortization on disposals and transfers

 

3.1

   

3.1

Accumulated amortization and impairment losses December 31

-97.0

-213.1

-34.7

-3.4

-251.2

           

Carrying amount on January 1

213.7

50.2

4.4

6.1

60.7

Carrying amount on December 31

180.7

40.5

2.9

13.5

56.9

           

2016

         

EUR million

Goodwill

Intangible

rights

Develop-

ment

costs

Advances

paid and

work in

progress

Total other intangible assets

Cost January 1

249.1

219.4

30.3

15.2

264.9

Translation differences and other adjustments

-2.8

-0.3

   

-0.3

Acquired businesses

30.5

18.1

0.2

 

18.3

Business divestments

       

0.0

Additions

 

0.6

2.9

11.1

14.5

Disposals

       

0.0

Transfers between items

 

12.6

4.3

-16.9

0.0

Cost December 31

276.8

250.5

37.6

9.4

297.5

           

Accumulated amortization and impairment losses January 1

-63.1

-183.3

-27.5

-3.4

-214.2

Translation differences and other adjustments

       

0.0

Business divestments

       

0.0

Amortization for the financial period

 

-16.9

-1.4

 

-18.3

Impairments

   

-4.3

 

-4.3

Accumulated amortization on disposals and transfers

       

0.0

Accumulated amortization and impairment losses December 31

-63.1

-200.3

-33.2

-3.4

-236.8

           

Carrying amount on January 1

186.0

36.1

2.7

11.9

50.7

Carrying amount on December 31

213.7

50.2

4.4

6.1

60.7

           

2015

         

EUR million

Goodwill

Intangible

rights

Develop-

ment

costs

Advances

paid and

work in

progress

Total other intangible assets

Cost January 1

246.2

218.9

29.1

9.2

257.3

Translation differences and other adjustments

-0.2

-4.9

   

-4.9

Acquired businesses

3.1

2.6

   

2.6

Business divestments

       

0.0

Additions

 

8.4

0.1

8.1

16.6

Disposals

 

-6.7

   

-6.7

Transfers between items

 

1.0

1.1

-2.1

0.0

Cost December 31

249.1

219.4

30.3

15.2

264.9

           

Accumulated amortization and impairment losses January 1

-63.1

-168.9

-25.6

-3.4

-197.9

Translation differences and other adjustments

 

1.9

   

1.9

Business divestments

       

0.0

Amortization for the financial period

 

-15.2

-0.9

 

-16.1

Impairments

 

-7.6

-1.1

 

-8.6

Accumulated amortization on disposals and transfers

 

6.6

   

6.6

Accumulated amortization and impairment losses December 31

-63.1

-183.3

-27.5

-3.4

-214.2

           

Carrying amount on January 1

183.1

50.0

3.5

5.9

59.4

Carrying amount on December 31

186.0

36.1

2.7

11.9

50.7

           

Intangible rights include customer portfolios acquired in business combinations as well as licenses and applications.

           

Goodwill and impairment testing

Posti has made significant investments in business acquisitions and intangible assets including IT systems, licences, acquired trademarks and customer portfolios as well as in property, plant and equipment comprising mainly real-estates, vehicles and other production equipment. Most significant goodwill balance subject to the annual impairment testing is allocated to OpusCapita, one of Posti’s cash-generating units that have goodwill on their balance sheets. Goodwill and intangible assets not yet in use are tested for impairment annually or more often if indicators of impairment exist, whereas other assets are tested for impairment when circumstances indicate there may be a potential impairment.

           

The determination of impairments of goodwill and other intangible assets involves the use of estimates and is one of the critical accounting policies where the managment makes estimates and judgments. This has been described in the accounting principles under the section "Critical accounting estimates and judgments in applying accounting policies."

           

Allocation of goodwill to the Group's cash-generating units (CGUs) is presented in the table below. Operating segment of each CGU is presented in brackets.

           

EUR million

   

2017

2016

2015

Postal Services (Postal Services)

   

63.6

44.1

44.1

OpusCapita (OpusCapita)

   

70.4

122.7

107.1

Parcel and Transportation Services (Parcel and Logistics Services)

   

32.7

32.7

21.8

Supply Chain Solutions (Parcel and Logistics Services)

   

12.9

12.9

12.9

MaxiPost (Itella Russia)

   

1.1

1.2

0.0

Total

   

180.7

213.7

186.0

           

The result of the goodwill impairment testing in 2017

Posti has performed the annual impairment tests for each cash-generating units containing goodwill. The Group does not have other intangible assets with indefinite useful life. Based on the tests, the Group recognized impairment of OpusCapita's goodwill in the amount of EUR 33.9 million. In conjunction with the restructuring of OpusCapita and the refocusing of its operations, the future outlook and cash flow forecasts of the cash generating unit have been updated. In 2016 and 2015 no impairment losses were recognized based on goodwill impairment tests.

           

Reallocation of goodwill

OpusCapita carried out significant restructuring measures during the financial year. OpusCapita’s sending of documents and invoices as well as the digitizing operations in Finland were transferred to Posti’s Postal Services business group effective from October 1, 2017. The Buyer-Supplier Ecosystem business continues as a unit of its own within OpusCapita segment and is a separate cash-generating unit. Following the reorganization the goodwill previously included in OpusCapita was reallocated between Postal Services and OpusCapita. The reallocation of goodwill was based on the relative fair values (level 3 of the fair value hierarchy) of the transferred businesses and as result of the reallocation EUR 18.4 million of the goodwill was allocated to Postal Services and EUR 70.4 million to OpusCapita.

           

Impairment testing and sensitivity analysis

The recoverable amount of the CGU's is based on the value-in-use method. The value-in-use is based on forecasted discounted cash flows. Cash flow forecasts are prepared for a five-year period and they are based on strategic plans. The forecasts and the assumptions about the development of the business environment are in line with the current business structure and approved by the management. The key assumptions influencing the cash flow forecasts are the long-term market growth, market positions and the profitability level. Investments are expected to be ordinary replacement investments. The tests were performed applying the euro-exchange rates of the foreign currencies on the testing date.

           

The terminal value beyond five years of cash-generating units is based on a moderate growth rate expectation of 1 % (2016: 1 %, 2017: 1 %) with the exception of Postal Services where the estimated terminal growth rate is -5% (2016: -5%, 2015: -5%) due to expected decline in paper delivery volumes and MaxiPost where the rate is 3% (2016: 3%, 2015: n/a) to reflect the higher inflation in Russia.

           

Weighted average cost of capital (WACC) before taxes determined for each CGU has been used as discount rate. Pre-tax discount rates reflect specific risks relating to the relevant CGUs. The discount rates increased slightly in comparison with previous year which is mainly attributable to higher risk-free interest-rate.

           

The key outcomes and the parameters used in testing

2017

         
 

Value-in-use

exceeds

carrying

amount, MEUR

EBIT

margin

average, %

Terminal

growth

rate, %

Discount

rate, %

Terminal

year EBIT

margin, %

Postal Services (after reallocation)

97

4.9

-5.0

7.6

4.4

OpusCapita (after reallocation)

22

2.5

1.0

9.5

8.6

Parcel and Transportation Services

375

3.7

1.0

7.4

5.8

Supply Chain Solutions

135

6.2

1.0

7.4

9.1

MaxiPost

2

0.6

3.0

13.4

5.1

           

2016

         
 

Value-in-use

exceeds

carrying

amount, MEUR

EBIT

margin

average, %

Terminal

growth

rate, %

Discount

rate, %

Terminal

year EBIT

margin, %

Postal Services

299

8.3

-5.0

7.1

7.0

OpusCapita

64

5.4

1.0

9.3

7.6

Parcel and Transportation Services

127

2.0

1.0

7.0

2.6

Supply Chain Solutions

13

3.0

1.0

7.0

5.2

MaxiPost

3

1.8

3.0

14.5

11.7

           

2015

         
 

Value-in-use

exceeds

carrying

amount, MEUR

EBIT

margin

average, %

Terminal

growth

rate, %

Discount

rate, %

Terminal

year EBIT

margin, %

Postal Services

460

8.6

-5.0

6.8

7.0

OpusCapita

172

6.4

1.0

8.2

8.2

Parcel and Transportation Services

296

1.1

1.0

7.2

2.6

Supply Chain Solutions

92

10.3

1.0

6.9

11.9

           

A sensitivity analysis was performed for those cash-generating units where the Group estimates that a reasonably possible change in the key assumptions could cause recognition of an impairment loss. The analysis was done by determining which key parameter values would produce a carrying amount that would equal the value-in-use. The parameters used in the analysis were the discount rate and the terminal year EBIT margin. The analysis was carried out by changing the values of a single parameter while leaving the others constant. The table below indicates the limits within which the carrying amount and value-in-use are equal.

           
       

Discount

rate, %

Terminal

year EBIT

margin, %

Postal Services

     

16.7

1.7

OpusCapita

     

11.3

6.5

 

         

The sensitivity analyisis has not been prepared for other CGUs as the management has considered and assessed reasonably possible changes for key assumption and has not identified any instances that could cause the carrying amounts of the CGUs to exceed their recoverable amounts.