11 | goodwill

2015

2014

Cost

879,990

875,077

Accumulated impairments

-196,906

-196,906

Carrying amount as at 1 January

683,084

678,171

Acquisition of subsidiaries

181

4,913

Amortisation relating to divestments of subsidiaries

-4,097

-

Balance

-3,916

4,913

Carrying amount as at 31 December

679,168

683,084

Cost

876,074

879,990

Accumulated impairments

-196,906

-196,906

CARRYING AMOUNT AS AT 31 DECEMBER

679,168

683,084

The acquisition of subsidiaries is specified in more detail in note 4.

Goodwill is allocated to cash-generating units. The following allocation is based on the country-focused reporting structure used by the Executive Board to monitor goodwill in 2015:

2015

2014

The Netherlands General Staffing

98,935

102,851

The Netherlands Specialist Staffing

211,335

211,335

The Netherlands Secretary Plus

5,849

5,849

The Netherlands Professionals

66,598

66,598

The Netherlands Online Business Solutions

7,104

7,104

Belgium General Staffing

141,500

141,500

Belgium Specialist Staffing

21,893

21,893

Belgium Secretary Plus

14,823

14,823

Belgium Professionals

11,389

11,389

Belgium Online Business Solutions

1,703

1,703

France Professionals

1,056

1,056

Germany Specialist Staffing

96,983

96,983

679,168

683,084


Impairment for cash-generating units where goodwill is capitalised
The cash-generating units are subject to impairment testing annually and in case of a triggering event. Impairment testing involves comparing the carrying amount of the cash-generating units concerned with their recoverable amount. This recoverable amount is the higher of the fair value and the value in use.
The fair value is based on the intended public offer announced by Recruit Holdings Co., Ltd. on 22 December 2015, plus the net financial debt position at the end of 2015 less costs of disposal linked to the public offer. The offer of € 17.50 per ordinary share represents a total share value of € 1,419,578 based on 81,118,761 issued shares. After adding the debt position of € 134,414 and deducting the possible costs of disposal of € 12,168 linked to the public offer, the fair value amounts to € 1,541,824. The fair value is allocated to the cash-generating units based on the relative share in the value in use of USG People N.V. as a whole because it is assumed that the synergies which Recruit Holdings Co., Ltd. expects to achieve (as evidenced by the control premium stated in the intended public offer) will be divided equally among the cash-generating units pro rata their relative share in the value in use.
The value in use is calculated based on future cash flows discounted using a pre-tax discount rate. For the different cash-generating units this resulted in a pre-tax discount rate between 12.4% and 16.2% (2014: between 10.7% and 18.0%).
The recoverable amount is based on the fair value because this is higher than the value in use. The post-tax discount rate was between 9.1% and 9.6%.  
Future cash flows of cash-generating units are estimated based on actual income from operations and projected future performance, which are based on past performance, management expectations and assumptions about revenue growth, the gross margin and cost developments for a period of seven years (2014: seven years). This is tested against external data. Cash flow projections after this period are extrapolated using a growth rate of 0% (2014: 0.6%) for the entire group. The growth rate is based on factors including the current low risk-free interest rate.

The divergence from the maximum five-year projection required under IAS 36 reflects the fact that a full market cycle in this sector lasts around seven years. The residual value is based on the average level of the projection and is adjusted for inflation.

The main assumptions for the value in use in the impairment test calculations are:

  • Expected average annual group revenue growth of 5% to 8% during the first three years and 3% to 5% in the following four years. Projections for average annual revenue growth in mature markets range from 5% to 8% during the first three years and 3% to 5% in the following four years. In the growth markets the calculations are based on expected average annual revenue growth of 4% to 5% in the first three years and 3% to 4% in the following four years. The calculations take into account improved economic growth projections in the various countries, bearing in mind the cyclical nature of the business.
  • Group EBITA of 5% to 5.5% of revenue over a 7-year period.
  • Revenue and EBITA growth rates will vary for each cash-generating unit and depend largely on economic forecasts and the various types of services.

The expected average revenue growth and discount rate of the cash-generating units where a significant part of the goodwill is allocated are on an annual basis as disclosed below:

2015

ASSUMED PROJECTED
AVERAGE REVENUE
GROWTH 2016-2022

PRE-TAX
DISCOUNT RATE

POST-TAX
DISCOUNT RATE1

The Netherlands General Staffing

4.7%

12.6%

9.2%

The Netherlands Specialist Staffing

4.3%

12.6%

9.2%

The Netherlands Professionals

5.7%

12.5%

9.2%

Belgium General Staffing

3.8%

16.2%

9.6%

Germany Specialist Staffing

3.2%

13.0%

9.1%

  1. 1 Information included to reflect use of fair value as recoverable amount

2014

ASSUMED PROJECTED
AVERAGE REVENUE
GROWTH 2015-2021

PRE-TAX
DISCOUNT RATE

The Netherlands General Staffing

3.8%

12.8%

The Netherlands Specialist Staffing

4.5%

12.8%

The Netherlands Professionals

6.4%

12.8%

Belgium General Staffing

4.6%

15.8%

Germany Specialist Staffing

5.5%

13.2%

The expected average revenue growth of the cash-generating units is in line with last year’s expectations taking into account the development of gross domestic product in the most important countries for USG People. In the medium term all cash-generating units are expected to benefit from the investments made in innovations and ICT and the scalability of existing business models.

Based on the projections no impairments were taken on goodwill, property, plant and equipment, and other intangible assets (2014 € 0). The available headroom, ranging from 31% to 513% at the end of 2015, is of such a magnitude that no sensitivity analyses were performed on possible situations that could result in an impairment.

At the end of 2014 the recoverable amount was based on the value in use because it was higher than the fair value. Sensitivity analyses were performed to assess possible situations that could lead to an impairment. The outcome of these sensitivity analyses for the cash-generating units to which a significant part of the goodwill is allocated was as follows:

  • A 50 basis points rise in the pre-tax discount rate could lower the amount by which the value in use exceeds the carrying value by 12%, resulting in an impairment of € 4 million.
  • If revenue projections for 2015 were lowered by 10% and therefore also revenue levels for the years that follow, this could lower the amount by which the value in use exceeds the carrying amount by 36% and could result in a total impairment of € 24 million.
  • If the projections for EBITA as a percentage of revenue for the period 2015 to 2021 were lowered by 50 basis points the amount by which the value in use exceeds the carrying amount could fall by 36% and result in a total impairment of € 18 million.

Specialist Staffing Germany was the most sensitive cash-generating unit while General Staffing Belgium and Professionals The Netherlands were less sensitive. It should be noted that the headroom of Specialist Staffing Germany was limited, making this cash-generating unit very sensitive to fluctuations in applicable projections for 2015. If actual EBITA or revenue achieved in 2015 were 0.1% below the figures projected in the model applicable for impairment testing, this would have resulted in an impairment. The other input variables used in sensitivity analysis calculations have been kept the same as the initial projections. In reality the various input variables will influence each other, meaning that the outcome of the analysis provided merely an indication of the impact of unilateral changes.