5 Goodwill and other intangible fixed assets

Movements in the goodwill and other intangible fixed assets are shown in the table.

Goodwill

Cash generating unit

In 2014, Q-Park has further developed and adapted the cluster structure implemented in 2013. This naming has been changed from 'cluster' to 'region'. The regions are managed by the responsible regional management team consisting of a general regional director and a financial regional director. The country directors are managed by, report to and are appraised by the regional management teams. In line with this management structure, from 1 January 2015 the Belgian activities belong to region ‘South’, whereas up to the end of 2014, Belgium was part of region ‘Mid’. Consequentially, Q-Park identifies its cash generating units at regional level.

The regional structure is defined as follows:

• Region ‘Mid’ - Netherlands and Germany;
• Region ‘West’ - Great Britain and Ireland;
• Region ‘South’ - France and Belgium;
• Region ‘North’ - Denmark, Sweden, Norway and Finland.

The information in this note is based in the region structure. Where applicable, the comparative figures in this note for 2013 have been adjusted on this point.

Impairment calculations

Goodwill impairment calculations are conducted annually in accordance with IAS 36. Per cash generating unit (region), the book value is checked against the realisable value. This realisable value is defined as the greater of the net realisable value according to the ‘value in use’ (VIU) methodology and net realisable value according to the ‘fair value less costs of disposal’ (FVLCD) methodology. The detailed FVLCD calculation is subsequently assessed in the market by an external expert.

IFRS 13 makes a distinction between the following three valuation methods:

• Level 1: Unadjusted quoted prices in active markets for identical assets and liabilities;
• Level 2: Actual prices for similar assets and liabilities in active markets or data which is based on or is supported by observable market data;
• Level 3: Unobservable data for determining the fair value of an asset or liability.

The FVLCD calculation applied is classified as 'level 3'.

The FVLCD methodology used in 2014 is consistent with that used in the previous year which was referred to in the annual accounts of 2013 as ‘VIU’. In the light of current insights, the term ‘FVLCD’ would have been a more obvious one for the calculation concerned. In fact, the FVLCD has therefore been leading in both years. Furthermore, the name change does not affect the results or shareholders' equity at the end of 2013 or 2014.

From the impairment analysis in the 2013 financial year, it transpired that, partly due to the lack of relevant market transactions and opportunities in the (parking) market, the FVLCD calculation set internally was more relevant than the (limited) external market information. In 2014, partly due to information becoming available about a number of relevant transactions in the market, the external market test confirmed the internal calculation.

In the impairment calculations the future operational cash flows and investment cash flows used in the business plan calculations are discounted for a period of five years. The calculations can be divided into three parts:

• the cash flows in the first 4 years are based on the most recent business plans;
• in year 5, the cash flows for years 1 to 4 will be normalised and indexed;
• the residual value is calculated by dividing the cash flow in year 5 by the weighted average cost of capital (WACC) minus the growth included in the calculation (WACC – g). The growth in the residual value is based on inflation expectations.

The total of these three components is discounted against the weighted average cost of capital (WACC) of each cash generating unit.

Book value and goodwill impairment results

The results of goodwill impairment in 2014 amounted to EUR -133.1 million (2013: zero). This goodwill impairment result is mainly due to revised cash flow projections. The book value of the goodwill at the end of the financial year and the goodwill impairment result in the financial year are shown in the table.

The goodwill arising from the acquisition of business combinations concerning the adjustment of the deferred tax liabilities from fair value to face value is not part of the goodwill included in the impairment test. At the end of the financial year this goodwill amounted to EUR 27.8 million (2013: EUR 90.6 million). Region 'South' is fully responsible for the amount of EUR 27.8 million.

Assumptions and sensitivity analysis

The primary assumptions as applied in the goodwill impairment calculation are shown in the table.

The table shows a sensitivity analysis for two different scenarios based on the FVLCD model, and provides insight into the impact of changes in the WACC and growth assumptions on the impairment result in 2014.

An increase in the WACC by 0.25% would have an impact on the impairment result of EUR -14.5 million (2013: EUR -16.1 million). A reduction in growth of the residual value from 2.0% to 1.5% would have an impact on the impairment results amounting to EUR -23.3 million (2013: EUR -11.5 million). Due to the fact that the full goodwill for region 'South' consists of the goodwill not included in the impairment testing, as explained above, adjustments to the WACC or growth assumptions do not have an impact on the impairment result in 2014.

When determining the impact as shown in the previous table, we have deduced from the possible effect that the adjustments would have on the value of the investment properties.

Other intangible fixed assets

Investments in other intangible fixed assets are related to the acquisition of Mobil Park AB and also to investments in software. The impairment in the 2014 financial year is related to a rationalisation in Q-Park's overall IT programme, which has resulted in a write-down on a number of IT projects.