Page 77 - Loomis Annual Report 2017

Loomis Annual Report 2017
Notes – Group 73
are reported when they are expected to be able to be utilized, and correspondingly, reduced when it is expected that these amounts, in their entirety or partly, will not be able to be used against future taxable income.
Deferred tax assets and deferred tax liabilities are offset when there is a legal right to offset current tax assets against current tax liabilities and when deferred taxes are levied by the same tax authority.
Statement of cash ows (IAS 7)
The statement of cash ows has been prepared in accordance with the indirect method. Liquid funds include cash and bank deposits, as well as current investments, with a maximum dura- tion of 90 days.
Goodwill and Other Acquisition-related intangible assets (IFRS 3, IAS 36 and IAS 38)
Goodwill represents the positive difference between the con- sideration transferred and the fair value of the Group’s share of identi able net assets of the acquired subsidiary/operation at the date of acquisition. As goodwill has an inde nite useful life, it is tested annually for impairment and is reported as the consideration transferred less accumulated impairment losses. Gains and losses on the divestment of companies include
the carrying amount of goodwill relating to the sold company. Impairment losses on goodwill are not reversed.
Other acquisition-related intangible assets arising from acqui- sitions may include various types of intangible assets, such as customer-related, contract-related and technology-based intan- gible assets. Other acquisition-related intangible assets have a de nite useful life. These assets are reported at cost, less accu- mulated amortization and any accumulated impairment losses. Amortization takes place on a straight-line basis over the esti- mated useful life of the asset.
Loomis’ acquisition-related intangible assets primarily refer to customer contract portfolios and the related customer relation- ships. The valuation of the customer contract portfolios is based on the so-called “Multiple Excess Earnings Method” (MEEM) which is a valuation model based on discounted cash ows.
The valuation is based on the turnover rates and returns on the acquired portfolio at the time of the acquisition. In the model, a speci c cost or required return in the form of a so-called “con- tributory asset charge” is applied for the assets utilized in order for the intangible asset to generate returns. Cash ows are dis- counted using the Weighted Average Cost of Capital (WACC), adjusted for local interest rate levels in the countries in which the acquisition takes place. The useful life of customer contract port- folios and the related customer relationships are based on the turnover rate of the acquired portfolio and are between 3 and 10 years corresponding to an annual amortization of between 10 percent and 33.3 percent.
The Group has reviewed the useful life of its intangible assets in accordance with the provisions of IAS 38. This review did not give rise to any adjustments.
A deferred tax liability is calculated at the local tax rate on the difference between the carrying amount and tax base of intan- gible assets with de nite useful lives (accordingly, goodwill does not give rise to any deferred tax liability). The deferred tax lia- bility is dissolved over the same period as the intangible asset
is amortized, and thereby neutralizes the impact of the amorti- zation of the intangible asset on the full tax rate percentage on income after tax. This deferred tax liability is initially reported through a corresponding increase in goodwill.
Goodwill and other acquisition-related intangible assets are allocated to cash-generating units (CGU). A cash-generat-
ing unit is the smallest unit for which there are identi able cash ows. The allocation is made to those cash generating units or groups of cash generating units, that are expected to pro t from the acquisition generating the goodwill. This allocation is the basis for the yearly impairment testing.
The amortization of acquisition-related intangible assets is reported in the entry Amortization of acquisition-related intangi- ble assets in the statement of income.
Other intangible assets (IAS 36 and IAS 38)
Other intangible assets, that is, intangible assets other than goodwill and acquisition-related assets, are reported if it is prob- able that the expected future economic bene ts attributable to the asset will accrue to the Group and that the cost of the asset can be reliably measured.
Other intangible assets have a de nite useful life. These assets are reported at cost less accumulated amortization and any accumulated impairment losses.
Straight-line amortization over the estimated useful life is applied for all classes of assets, as follows:
Software licenses 12.5–33.3 percent
The useful lives of assets are reviewed annually and adjusted, if appropriate.
Tangible xed assets (IAS 16 and IAS 36)
Tangible xed assets are reported at cost, less accumulated depreciation and any accumulated impairment losses. Cost includes expenses directly attributable to the acquisition of the asset. Additional expenses are added to the reported value of the asset or are reported as a separate asset, as appropriate, only if it is likely that the Group will bene t from the future nancial ben- e ts associated with the asset, and if the cost of the asset can
be reliably calculated. The reported value of the replaced part
of the asset is eliminated from the balance sheet. All other types of repairs and maintenance are reported as costs in the state- ment of income in the period in which they arise. Depreciation is based on historical cost and the expected useful life of the asset. The residual values and useful lives of the assets are reviewed
on each balance sheet date and adjusted as needed. An asset’s reported value is written-down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.
The straight-line method of depreciation, over the estimated useful life, is applied to all classes of assets, as follows: Machinery and equipment 10–25 percent Buildings and land improvements 1.5–4 percent Land is not depreciated.
Gains and losses on disposals are determined by comparing proceeds from the sales with the asset’s reported value, and are reported as production expenses or selling and administra- tive expenses, depending on the type of asset being sold.
Impairment (IAS 36)
Assets with an inde nite useful life are not subject to amorti- zation and are tested annually for impairment. Assets subject to amortization are tested for impairment at least on each bal- ance sheet date or when events or new circumstances indicate that the recoverable amount will not amount to at least the car- rying amount. An impairment loss is recognized in the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s net realizable amount and its value in use.
Value in use is measured as the present value of expected future cash ows. The measurement of value is based on assumptions and judgements. The primary assumptions relate to organic growth, development of the operating margin, the use of operating capital employed and the relevant WACC rate used to discount future cash ows. For the purpose of assessing impair- ment, assets are grouped at the lowest level for which there are separately identi able cash ows (cash generating units). For assets, other than goodwill, for which impairment losses have