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Note 10 Depreciation, amortisation and impairment charges

Accounting principles

Depreciation, amortisation and impairment charges

Depreciation or amortisation of an asset begins when it is available for use in the location and condition necessary for it to be operated in the manner intended by management. Depreciation or amortisation ceases when the asset is derecognised or classified as held for sale in accordance with IFRS 5. Depreciation or amortisation does not cease when the asset becomes idle. Tangible and intangible assets are depreciated and amortised on a straight-line basis over their useful lives. Useful lives are reviewed periodically. If an asset is disposed of, proceeds exceeding the carrying value of the asset up to its historical cost are netted against depreciation, amortisation and impairment charges. Only disposal proceeds exceeding the historical cost of an asset are presented as other operating income (note 5). If the asset’s book value is higher than the disposal proceeds, the difference is recognised as an impairment in the period when a binding sales contract is signed.

The carrying amounts of intangible assets and property, plant and equipment are reviewed at each reporting date to determine whether there is any indication of impairment, whereas goodwill is tested annually. If any such indication exists, the recoverable amount is estimated as the higher of the fair value less costs of disposal and the value in use, with an impairment loss being recognised whenever the carrying amount exceeds the recoverable amount.

A previously recognised impairment loss on property, plant and equipment is reversed if there has been a change in the estimates used to determine the recoverable amount, however, not to an extent higher than the carrying amount that would have existed had no impairment loss been recognised in prior years. For goodwill, however, a recognised impairment loss is not reversed.

Whilst intangible assets and property, plant and equipment are subject to impairment testing at the cash generating unit (CGU) level, goodwill is subject to impairment testing at the CGU level for groups of CGUs, which represents the lowest level within the group at which goodwill is monitored for internal management purposes.


 

Depreciation, amortisation and impairment charges
Year Ended 31 December
EUR million 2017 2016
Depreciation and Amortisation
Intangible assets 18 18
Buildings and structures 82 85
Plant and equipment 382 389
Other tangible assets 11 12
Total 493 504
Impairment and Disposal Gains/Losses
Goodwill - 11
Intangible assets 11 -
Land 5 -
Buildings and structures - 25
Plant and equipment 7 60
Other tangible assets 4 7
Gain on sale of fixed assets -2 -159
Loss on sale of fixed assets 3 -
Total 28 -56
Reversal of Impairment
Intangible assets -3 -
Buildings and structures - -9
Plant and equipment -3 -41
Total -6 -50
Depreciation, Amortisation and Impairment Charges 515 398

Depreciation and amortisation

The total depreciation and amortisation charge amounted to EUR 493 million and was EUR 11 million less than in 2016. A breakdown of depreciation, amortisation and impairment charges by divisions is set out in Note 3 Segment information.

Disposal gains and losses

There were no material disposal gains or losses relating to fixed assets in 2017.

On 6 June 2016 Stora Enso announced the divestment of key assets of its Suzhou Mill in China, including the land-use rights and buildings, to the local government of Suzhou National New & Hi-tech Industrial Development Area (SND). The cash consideration for the assets was EUR 240 million. According to Stora Enso’s accounting policy, disposal proceeds exceeding the carrying value of the asset but not its historical cost are netted against depreciation, amortisation and impairment charges. In 2016, the depreciation, amortisation and impairment charges included a disposal profit of EUR 159 million as well as a reversal of previous impairment charges of EUR 41 million. Suzhou mill was part of the Paper division.

Impairment testing

The recoverable amount for the CGUs has been determined based on a value-in-use calculation using cash flow projections from financial budgets approved by the Board of Directors and management. The pre-tax discount rates are calculated for each cash generating unit taking into account the tax and risk profile of the country in which the cash flow is generated. The table in the goodwill impairment testing section below sets out the pre-tax discount rates used for goodwill impairment testing, which are similar to those used in the impairment testing of other intangible assets and property, plant and equipment.

Impairments were calculated using a value-in-use method for each CGU based on the following main assumptions:

  • Sales price estimates in accordance with internal and external specialist analysis
  • Cash flows were prepared in real terms
  • Current cost structure to remain unchanged
  • For goodwill testing a four-year future period was used after which the perpetuity value was based on zero growth rates, whereas for intangible assets, property, plant and equipment testing the period was the remaining expected economic life of the assets.

Other intangible assets and property, plant and equipment impairment

The total impairment charges on other intangible assets and property, plant and equipment in 2017 amounted to EUR 27 (EUR 92) million and resulted mainly from impairment testing and restructurings.

Newsprint Europe CGU in Paper division was not tested for impairment in 2017. Newsprint Europe CGU division was tested for impairment in 2016 due to further weakened long-term earnings expectations resulting from decline in the European paper markets. The recoverable amount was based on the value-in-use and amounted to EUR 233 million. The pre-tax discount rate used for impairment testing in 2016 was 6.8%. The group recorded an impairment charge of EUR 78 million in Newsprint Europe CGU in 2016.

Goodwill impairment testing

In 2017 the Goodwill testing did not result in impairment.

In 2016 the total goodwill impairment charge amounted to EUR 11 million and was fully related to Corrugated China operations in Packaging Solutions division. The main reason for the impairment is the challenging market situation and a change in the customer base. Stora Enso recognises goodwill only to the extent of its interest in the net assets acquired (the partial goodwill method). As such, the impairment of goodwill is fully allocated to the owners of the parent company. After the impairment no goodwill was left in Corrugated China CGU.

Groups of cash generating units containing goodwill
Year Ended 31 December
2017 2016
EUR million Goodwill at Year End Intangible Assets and Property, Plant and Equipment at Year End Recoverable Amount at Year End Impairment Charge Pre-tax Discount Rate Goodwill at Year End Intangible Assets and Property, Plant and Equipment at Year End Recoverable Amount at Year End Impairment Charge Pre-tax Discount Rate
Packaging Solutions - Europe 19 712 2 117 - 8.8% 19 671 1 529 - 10.0%
Packaging Solutions - Corrugated China - 52 - - 6.7% - 56 56 11 8.0%
Biomaterials - Innovation and Nordic Operations 28 348 1 916 - 6.1% 32 343 769 - 7.5%
Wood Products - Central Europe 107 159 937 - 5.4% 104 160 713 - 6.8%
Paper - Newsprint and Book Paper 43 245 528 - 5.4% 43 261 542 - 6.8%
Paper - Uncoated Magazine Paper 40 263 492 - 5.4% 40 290 774 - 6.8%
Goodwill 237 1 779 5 990 - 238 1 781 4 383 11
Segment impairments and impairment reversals, disposal gains and losses
Year Ended 31 December
EUR million 2017 2016
Consumer Board - -
Packaging Solutions 3 18
Biomaterials 1 -
Wood Products - -1
Paper 7 32
Other 11 4
Total (impairment/disposal loss +) / (reversal/disposal gain -) 22 53

The calculation of value-in-use is highly sensitive to discount rates, sales prices and costs. The Sensitivity Analysis table below summarises what effect a 1% change in the discount rate, 1% decrease in sales prices and 1% increase in costs would have had on the recoverable amounts of the groups of CGUs carrying the most of the group’s total goodwill.

Goodwill testing sensitivity analysis, impact on recoverable amount
EUR million Wood Products - Central Europe Paper - Newsprint and Book Paper - Uncoated Magazine Paper
1% increase in the discount rate -178 -68 -66
1% annual decrease in the sales price -145 -95 -66
1% annual increase in the costs -132 -88 -60

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