NOTES TO THE BALANCE SHEET
Note 25. Intangible assets
Accumulated amortisation and impairments 1 Jan. 2014
Customer relationships related to insurance contracts and policy acquisition costs
-194 301
-218 Accumulated amortisation and
impairments 31 Dec. 2014
Other intangible assets include computer software to the carrying amount of EUR 81 million and EUR 27 million in computer software under development.
Amortisation, impairment losses and their reversals were recognised on the income statement under Other operating expenses.
-24 Amortisation during the financial
year
84 Changes in intangible assets, EUR
million
108
Goodwill Brands
Other intangible
assets Total
Acquisition cost 1 Jan. 2013 519 179 230 1,230
Increases 31 31
Decreases -3 -3
Transfers between items
Acquisition cost 31 Dec. 2013 519 179 259 1,258
-7 -131 -308
-20 -43
Decreases 3 3
Other changes
-7 -148 -349
Carrying amount 31 Dec. 2013 519 172 111 910
Intangible assets with indefinite economic lives, EUR million 31 Dec. 2014 31 Dec. 2013
Goodwill 422 519
Brands 172 172
Total 595 691
Other most significant intangible assets
Carrying
Customer relationships 84 1–4 yrs 108 2–5 yrs
Software 81 2–5 yrs 92 2–5 yrs
Software under development 27 17
Changes in intangible assets, EUR million
301
Other intangible assets include computer software to the carrying amount of EUR 92 million and EUR 17 million in computer software under development.
Amortisation during the financial
year -24
Goodwill was acquired as part of the acquisition of Pohjola Group plc’s business operations in 2005 and as part of the acquisition of Pohjola Finance Ltd (formerly K-Finance Ltd) in 2008. In 2011, goodwill increased as a result of the acquisition of Excenta Ltd, a strategic corporate wellness services provider. Brands, customer relationships and a significant part of computer software were acquired as part of the acquisition of the Non-life Insurance operations.
Accumulated amortisation and -170 Amortisation, impairment losses and their reversals were recognised on the income statement under Other operating expenses.
108 301
31 Dec. 2014
The economic lives of goodwill and brands acquired through business combinations are estimated to be indefinite, since they affect the accrual of cash flows for an indefinable period.
Accumulated amortisation and
impairments 31 Dec. 2013 -194
109
Goodwill impairment test
Goodwill, EUR million 2014 2013
Non-life Insurance 410 410
Pohjola Asset Management Ltd* 97
Leasing and Factoring Services 13 13
Total 422 519
* Discontinued operation
For the purpose of goodwill testing, the value of the CGUs of Pohjola Group was determined by using the 'Excess Returns' method. Accordingly, profits for the current period and future periods were reduced by the return requirement set for shareholders' equity. Any excess return was discounted using a discount rate corresponding to the return requirement set for shareholders' equity in order to determine the present value of cash flows.
The discount rate used in the calculations was the market-based equity cost, which is in line with the applied value determination methods (i.e. through cash flows, only the value of equity belonging to investors was determined and the value was discounted by using the return requirement rate on equity capital). The discount rate used in the calculations before tax (i.e. IFRS WACC) varied from 6.7 to 11.3%. In 2013, it varied from 9.9 to 15.3%. Pohjola decreased the discount rate for Non-life Insurance by 0.9 percentage points and that for finance company services by 1.1 percentage points to correspond to the discount rate based on market information.
A sensitivity analysis was carried out separately on each CGU on the basis of key parameters of each CGU.
The forecasts used in cash flow statements are based on strategy figures for 2015–17, confirmed by Pohjola in 2012, and post-strategy-period expectations derived from them regarding business developments. Growth in cash flows for post-forecast periods ranges between 2 and 9%.
The impairment testing of goodwill did not lead to recognition of impairment losses.
The discount rate, combined ratio and net investment return (%) were used as key parameters in Non-life Insurance's sensitivity analysis – the same as in the previous year. The results of the sensitivity analysis did not undergo any major changes over the previous year. A 8.4-percentage point increase in the discount rate, a 6.7-percentage point increase in the combined ratio and a 2.4-percentage point decrease in net investment return compared with forecasts
throughout the testing period, with one tested parameter changing and other parameters remaining unchanged, would entail an impairment risk. In 2013, the results were as follows: a 5.9-percentage point increase in the discount rate, a 3.9-percentage point increase in the combined ratio and a 1.6-percentage point decrease in net investment return compared with forecasts throughout the testing period, would have entailed an impairment risk.
Goodwill of Pohjola Group originates entirely from the acquisition of the business operations of Pohjola Group Plc, Pohjola Finance Ltd and Excenta Oy. Goodwill was determined by the so-called Purchase Price Allocation process (PPA). The resulting goodwill was allocated to the cash-generating units (CGUs), which were either business segments or entities included in them. Impairment testing of goodwill was carried out in accordance with IAS 36 on those CGUs for which acquisition cost calculations in accordance with PPA were made, i.e. Non-life Insurance, Asset Management and finance company services. During the financial year, Pohjola Health Ltd merged into Pohjola Insurance Ltd. For testing goodwill of wellbeing-at-work services, the Group no longer determine a separate CGU, which is why said goodwill has been tested as part of the goodwill of Non-life Insurance.
The testing period was determined to be five years under IAS 36, including residual values.
110
In the autumn of 2014, OP Financial Group Central Cooperative's Supervisory Board decided to put Non-life Insurance together with Banking and Wealth Management under the OP brand. The Pohjola brand will be used mainly in the healthcare and wellbeing business and the closely related non-life products. As part of testing the Pohjola brand for impairment, the Group assessed the effect of the abovementioned change on the useful life and the length of the testing period, the discount rate, risk premium and royalty rate used in testing- As a result, the Group stated that the brand is in accordance with IAS 36, an intangible asset with indefinite useful life. Because the brand will be used in the new business that is expected to grow strongly in the initial stage, the testing period was extended to 15 years. The Group did not make any major changes in parameters because the new healthcare and wellbeing business is closely related to Non-life Insurance. In the testing of the brand, the Group took account of the cash flows comparable with the net sales of the businesses that will operate under the brand.
The value of the brands was determined by using the 'Relief from Royalty' method. Accordingly, their value was determined to be royalty savings accrued in the future from owning the brands, discounted to the present. The discount rate used in the calculations was the market-based equity cost defined for Non-life Insurance, plus an asset-specific risk premium. Pohjola decreased the discount rate for Non-life Insurance by 0.9 percentage points to correspond to the discount rate based on market information. In addition, the same risk premium and the corresponding royalty
percentages were applied in 2014 as in the PPA procedure and in previous years’ tests.
Pohjola Group's brands originate entirely from the acquisition of Pohjola Group plc's business operations. Impairment testing was carried out separately for the Pohjola, Eurooppalainen, A-Vakuutus (A-Insurance) and Seesam brands, in accordance with IAS 36.
Impairment testing of brands
As a result of testing brands for any impairment, Pohjola did not recognise any impairment loss on brands in its financial statements 2014. An impairment loss of EUR 1 million related to the Seesam brand was recognised in the 2011 and EUR 3 million in the 2009 and 2008 financial statements.
Impairment testing of other essential intangible assets
Pohjola Group's customer relationships and a significant part of computer software were acquired as part of the acquisition of the business operations of Pohjola Group plc. Intangible assets originating from customer relationships are charged to expenses using straight-line amortisation over their estimated economic lives, and no indications of the need for their impairment recognition have been discovered. Intangible assets originating from computer software used by Non-life Insurance and Asset Management were charged to expenses in full in prior financial years.
The testing period of brands was mainly determined to be five years under IAS 36. The testing period of the Pohjola brand was determined to be an exceptional period of 15 years because the use of the brand will be extended to cover a completely new business that will grow in the next few years. The forecasts used in cash flow statements are based on strategy figures for 2015-17 updated for Non-life Insurance and post-strategy-period expectations derived from them regarding the business line's future developments. A 2% inflationary expectation was used as growth in cash flows for post-forecast periods.
The discount rate, growth rate (%) of the loan portfolio and a growth rate (%) of expenses were used as key parameters in Leasing and Factoring Service's sensitivity analysis. The parameters used were the same as in the previous year. The results of the sensitivity analysis did not change significantly on a year earlier. A 11-percentage point increase in the discount rate, a 16-percentage point decrease in the loan portfolio and a 23-percentage point increase in expenses compared with forecasts throughout the testing period, with other parameters remaining
unchanged, would entail an impairment risk. In 2013, the results were as follows: a 7.5-percentage point increase in the discount rate, a 9.7-percentage point decrease in the loan portfolio and a 10-percentage point increase in expenses compared with forecasts throughout the testing period would have entailed an impairment risk.
111
EUR million 31 Dec. 2014 31 Dec. 2013*
Property in own use
Land and water areas 6 6
Buildings 43 42
Total 49 48
Machinery and equipment 3 4
Other tangible assets 3 3
Leased-out assets 17 27
Total property, plant and equipment 72 82
of which construction in progress 0 0
* Comparative figures have been restated as a result of the adoption of IFRS 10 Consolidated Financial Statements.
Property in own use
Machinery and equipment
Other tangible assets
Leased-out assets Total PPE
Acquisition cost 1 Jan. 2014 58 39 3 51 151
Increases 3 0 1 2 6
Decreases -1 -1 -1 -17 -19
Transfers to assets distributed to owners -1
Transfers between items 0 0
Acquisition cost 31 Dec. 2014 60 37 3 36 137
-10 -35 0 -24 -69
Depreciation during the financial year -1 -1 0 -8 -10
Impairments for the financial year 0 0
Reversals of impairments for the financial year 0 0
Decreases 0 0 0 12 13
Depreciation on assets distributed to owners 1
Other changes 0 0 0
-10 -34 0 -20 -66
Carrying amount 31 Dec. 2014 49 3 3 17 72
Accumulated depreciation and impairments 31 Dec.
2014
Accumulated depreciation and impairments 1 Jan.
2014
Note 26. Property, plant and equipment
Changes in property, plant and equipment (PPE), EUR million
112
Property in own use
Machinery and equipment
Other tangible assets
Leased-out assets Total PPE
Acquisition cost 1 Jan. 2013* 28 38 3 68 137
Increases 13 1 0 8 22
Decreases -3 0 0 -25 -29
Transfers between items 20 20
Acquisition cost 31 Dec. 2013* 58 39 3 51 151
-8 -34 0 -28 -70
Depreciation during the financial year -2 -1 0 -11 -14
Impairments for the financial year -2 -2
Reversals of impairments for the financial year 0 0
Decreases 2 0 0 15 18
Other changes 0 0
-10 -35 0 -24 -69
Carrying amount 31 Dec. 2013* 48 4 3 27 82
* Comparative figures have been restated as a result of the adoption of IFRS 10 Consolidated Financial Statements.
EUR million 31 Dec. 2014 31 Dec. 2013*
Payment transfer receivables 7 35
Pension assets 0 5
Accrued income and prepaid expenses
Interest 642 711
Other accrued income and prepaid expenses 9
Margin receivables related to derivative contracts 104 54
Other 1,036 554
Total 1,789 1,369
* Comparative figures have been restated as a result of the adoption of IFRS 10 Consolidated Financial Statements.
The item Other includes eg EUR 29 million (70) in accounts receivable from securities and EUR 862 million (408) in CSA collateral receivables.
Depreciation, impairment losses and their reversals are charged to Other operating expenses.
Changes in property, plant and equipment (PPE), EUR million
Accumulated depreciation and impairments 31 Dec.
2013*