12. Intangible assets
Impairment testing of goodwill
Goodwill from acquisitions is allocated to the Group’s cash-generating units (CGUs). CGUs are the lowest level of assets for which there are separately identifiable cash flows. Currently Wärtsilä identifies 2 (3) separate independent cash inflow CGUs to which goodwill can directly be linked as per the below table. In addition, the goodwill allocated for companies acquired during the current financial period has been subject to impairment testing. These companies have been integrated into the Power Business operations.
Cash-Generating Units
Goodwill
MEUR 2012 2011
Ship design 114
Cedervall 40
Hamworthy 311
Power Business, other 631 462
Total 942 616
The recoverable amounts from the CGUs are determined based on value-in-use calculations. The calculations are on a discounted cash flow method basis, derived from the order book and 5-year cash flow projections from management approved strategic plans. The estimated performances of the CGUs are based on utilisation of the existing property, plant and equipment in their current condition with normal maintenance capital expenditure, excluding any potential future acquisitions. Cash flows beyond the five-year period are calculated using the terminal value method. The terminal growth rate used in projections is based on management’s assessment on conservative long term growth. The terminal growth rate used is 2%.
The key driver for the valuation is the growth in the global economy and in particular the development of the global power market, the global shipbuilding industry and the demand for related services. The projected development of total costs in the market affects the profitability, whereas no single cost item is considered to have a material impact. The valuation driver for the new equipment sales is the growth in the global economy, whereas for after sales the drivers are also the demand for related services and the projected development in labour cost.
The applied discount rate is the weighted average pre-tax cost of capital (WACC) as defined by Wärtsilä. The components of the WACC are risk-free rate, market risk premium, industry specific beta, cost of debt and debt equity ratio. When defining the WACC for 2012, it has been considered that the general interest rate is currently on a lower level. Wärtsilä has used a WACC of 8.8% (9.1) in the calculations.
As a result of the impairment test, no impairment loss for any of the CGUs was recognized for the financial periods ended 31 December, 2012 and 2011 respectively. The recoverable amounts from all CGUs exceeded their carrying values remarkably.
Sensitivity analysis
Sensitivity analyses have been carried out for the valuation of each cash-generating unit by making downside scenarios. The change in the enterprise value was evaluated through these downside scenarios by changing the underlying assumptions in the valuations. The changes in the assumptions and their effects are:
- Sales growth lowered by 15%, effect 4%*
- Terminal growth rate lowered by 50%, effect 14% (15)
- Profitability (EBIT) lowered by 10%, effect 9%*
- WACC increased by 2 percentage units, effect 27% (29).
* In 2011, sales growth and EBIT profitability were lowered based on scenario analysis in each business. The effect was 24%.
According to the performed sensitivity analyses, none of the downside scenarios would change the long term key assumptions on which Wärtsilä’s recoverable amounts are based and none would cause their respective values to fall short of their carrying amounts. As a result of performed impairment tests, there is no need for write-downs of the goodwill in a particular cash generating unit.
In management’s opinion, the changes in the basic assumptions provided in these theoretical downside scenarios shall not be seen as an indication that these factors are likely to materialise. The sensitivity analyses are hypothetical and should therefore be treated with caution.
2012
MEUR Intangible
rights
Construction
in progress
and
advances paid
Other
intangible
assets
Goodwill Total
Cost at 1 January 2012 80 25 452 621 1 177
Changes in exchange rates 7 18 26
Acquisitions 1 118 307 426
Additions 22 18 1 41
Disposals and reclassifications 11 -14 7 3
Cost at 31 December 2012 92 33 601 947 1 673
Accumulated amortisation and impairment at 1 January 2012 -51 -298 -4 -352
Changes in exchange rates -2 -3
Accumulated amortisation on disposals and other changes 2 2
Amortisation during the financial period -5 -56 -61
Accumulated amortisation and impairment at 31 December 2012 -56 -352 -4 -414
Carrying amount at 31 December 2012 35 33 249 942 1 259
Development costs for internally generated assets amounting to EUR 24 million (14) were capitalised during the financial period, and the carrying amount was EUR 66 million (47).

Amortisations related to the purchase price allocations from acquisitions were EUR 35 million (16) and the carrying amount of them was EUR 190 million (108).
2011
MEUR Intangible
rights
Construction
in progress
and
advances paid
Other
intangible
assets
Goodwill Total
Cost at 1 January 2011 81 18 414 579 1 091
Changes in exchange rates 2 4 6
Acquisitions 23 40 64
Additions 12 9 21
Disposals and reclassifications -1 -5 4 -2 -4
Cost at 31 December 2011 80 25 452 621 1 177
Accumulated amortisation and impairment at 1 January 2011 -46 -261 -4 -311
Changes in exchange rates -1
Accumulated amortisation on disposals and other changes 1 2 3
Amortisation during the financial period -5 -38 -44
Accumulated amortisation and impairment at 31 December 2011 -51 -298 -4 -352
Carrying amount at 31 December 2011 28 25 156 616 826

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