Boskalis_Annual Report_2017

96 ANNUAL REPORT 2017 – BOSKALIS FINANCIAL STATEMENTS 2017 ANNUAL REPORT 2017 -- BOSKALIS FINANCIAL STATEMENTS 2017 96

Management projects cash flows based on past trends and estimates of future market developments, cost development and investment plans. For all cash-generating units, these projections factor in market conditions, order book in hand, expected win rates of contracts, expected vessel utilization, rates and revenues, expected cost developments, investment plans and/or industry developments. Key assumptions in the calculation of valuation in use are the growth rate applied to the calculation of the terminal value and to the discount rate used. Cash flows for the CGUs beyond five years are extrapolated using an estimated long-term growth rate of 1.0% (2016: 1.0%). The applicable growth rates do not exceed the long-term average growth rate which may be expected for the activities. The pre-tax discount rates used per CGU are: Offshore Energy 9.1% (2016: 9.4%), Inland Infra 9.0% (2016: 9.6%), Salvage 6.7% (2016: 6.6% ) and Dredging 8.3% (2016: 9.0%). The pre-tax discount rate used for each CGU to discount the pre-tax cash flows for impairment testing is determined through an iterative calculation using the projected post-tax cash flows, expected tax rate for the respective CGUs and a post-tax discount rate for each CGU. The Group has analyzed sensitivity to a reasonable possible change in the expected future cash flows over the carrying amount, including goodwill, of the CGU (‘headroom’). The recoverable amounts for Inland Infra, Salvage and Dredging exceed the carrying amounts of the CGUs with significant headroom. Since 2016 there has been a structural imbalance between supply and demand in some of our service- related offshore energy market segments, particularly within the heavy marine transport segment. This has put utilization, rates and margins under pressure, resulting in a non-cash impairment in 2016, both on the goodwill included in the table above and on the vessels that operate at the lower end of the market (see note 16). An impairment charge of EUR 382 million, based on a value-in-use calculation, was recognized in the previous financial year, setting the headroom at zero with a recoverable amount of EUR 1.4 billion as at 31 December 2016. With the same market conditions in certain market segments but also several investments in other market segments, the impairment test 2017 shows EUR 90 million headroom for the Offshore Energy cash-generating unit (CGU). The sensitivity analysis of the Offshore Energy CGU showed that if the cash flow projections used in the value-in-use calculations would have been 6% lower subsequent to 2018, the recoverable amount would equal its carrying amount. If the estimated pre-tax discount rate for the Offshore Energy CGU would have been 0.5% higher than disclosed above, the recoverable amount would also equal its carrying amount. OTHER INTANGIBLE ASSETS 15.2 Other intangible assets, which are identified and recognized at fair value in business combinations, consist of tradenames, technology (including software) and favorable contracts. Up to and including 2016 intangible assets included tradenames with an indefinite useful life for an amount of EUR 9.5 million. In December 2017 the Group decided to use Boskalis as the main trade name. Under IFRS this decision required an evaluation of the lifetimes and an impairment test of the value-in-use, which was performed by an external valuator. The test did not result in the recognition of an impairment and resulted in the harmonization of the remaining useful lives of tradenames to 10 years. This change in accounting estimates had no material impact on the net result for 2017 and will not materially impact future years.