Changes in intangible assets for 2012 and 2013 are shown below:
|Millions of euro||Development costs||Industrial patents and intellectual property rights||Concessions, licenses, trademarks and similar rights||Service concession arrangements||Other||Assets under development and advances||Goodwill||Total|
|Balance at Jan. 1, 2012 restated||21||576||16,296||2,946||551||317||18,342||39,049|
|Assets entering service||(1)||130||19||143||25||(316)||-||-|
|Exchange rate differences||1||(2)||93||(300)||(5)||-||28||(185)|
|Change in scope of consolidation||1||-||35||-||25||74||60||195|
|Remeasurement at fair value after changes in control||-||-||1||-||-||11||-||12|
|Reclassification from/to “assets held for sale”||-||-||(44)||-||-||-||-||(44)|
|Balance at Dec. 31, 2012 restated||27||573||16,129||2,468||506||384||15,910||35,997|
|Assets entering service||8||116||-||-||16||(140)||-||-|
|Exchange rate differences||(4)||(8)||(1,160)||(416)||(8)||(6)||(160)||(1,762)|
|Change in scope of consolidation||-||-||14||-||-||71||23||108|
|Reclassification from/to “assets held for sale”||-||-||(2)||-||-||-||-||(2)|
|Balance at Dec. 31, 2013||31||471||14,697||2,018||507||490||15,015||33,229|
The “change in scope of consolidation” for the period, net of the increase in “goodwill”, mainly concerned a number of wind projects in the United States and the acquisition of Compañía Energética Veracruz in Peru.
“Industrial patents and intellectual property rights” relate mainly to costs incurred in purchasing software and openended software licenses. The most important applications relate to invoicing and customer management, the development of Internet portals and the management of company systems. Amortization is calculated on a straight-line basis over the asset’s residual useful life (on average between three and five years).
“Concessions, licenses, trademarks and similar rights” include costs incurred by the gas companies and the foreign electricity distribution companies to acquire customers. Amortization is calculated on a straight-line basis over the average duration of the relationships with the customers acquired or the concessions. The item includes assets with an indefinite useful life in the amount of €9,995 million (€10,622 million at December 31, 2012), essentially accounted for by concessions for distribution activities in Spain (€5,676 million), Colombia (€2,034 million), Chile (€1,669 million) and Peru (€616 million), for which there is no statutory or currently predictable expiration date. On the basis of the forecasts developed, cash flows for each of the electricity distribution concessions are sufficient to recover the value of the intangible assets.
“Service concession arrangements”, recognized pursuant to IFRIC 12, regard certain infrastructure serving electricity distribution concessions in Brazil.
“Goodwill” amounted to €15,015 million, a decrease of €895 million over the previous year.
|Millions of euro||at Dec. 31, 2012 restated||Change in scope of consolidation||Exchange rate differences||Impairment losses||Other changes||at Dec. 31, 2013|
|Cost||Accumulated impairment||Net carrying amount||Cost||Accumulated impairment||Net carrying amount|
|Gruppo Enel Green Power (1)||974||(85)||889||22||(16)||-||(13)||967||(85)||882|
|Enel Distributie Muntenia||548||-||548||-||(1)||-||-||547||-||547|
|Enel Energie Muntenia||113||-||113||-||-||-||-||113||-||113|
(1) EGP España, EGP Latin America, EGP North America, EGP Hellas, Enel Panama, EGP France, EGP Romania, EGP Bulgaria, Powercrop, EGP Finale Emilia, EGP South Africa, EGP Portoscuso and other minor companies.
The “change in the scope of consolidation” mainly regards the acquisition of 50% of PowerCrop, which operates in the biomass generation sector, and other minor acquisitions by the Renewable Energy Division.
“Impairment losses” are recognized following impairment tests, as discussed below.
The criteria used to identify the cash generating units (CGUs) were essentially based (in line with management’s strategic and operational vision) on the specific characteristics of their business, on the operational rules and regulations of the markets in which Enel operates and on the corporate organization, including technical and management factors, as well as on the level of reporting monitored by management.
The recoverable value of the goodwill recognized was estimated by calculating the value in use of the CGUs using discounted cash flow models, which involve estimating expected future cash flows and applying an appropriate discount rate, selected on the basis of market inputs such as risk-free rates, betas and market risk premiums.
Cash flows were determined on the basis of the best information available at the time of the estimate and drawn:
- for the explicit period, from the 10-year business plan approved by the Board of Directors of the Parent Company containing forecasts for volumes, revenues, operating costs, capital expenditure, industrial and commercial organization and developments in the main macroeconomic variables (inflation, nominal interest rates and exchange rates) and commodity prices. More specifically, the explicit period of cash flows considered in impairment testing differs in accordance with the specific features and business cycles of the various CGUs being tested. These differences are generally associated with the different average times needed to build and bring into service the plant and other works that characterize the investments of the specific businesses that make up the CGU (conventional thermal generation, nuclear power, renewables, distribution, etc.);
- for subsequent years, from assumptions concerning longterm developments in the main variables that determine cash flows, the average residual useful life of assets or the duration of the concessions.
More specifically, the terminal value was calculated as a perpetuity or annuity with a nominal growth rate equal to the long-term rate of growth in electricity and/or inflation (depending on the country and business involved) and in any case no higher than the average long-term growth rate of the reference market. The value in use calculated as described above was found to be greater than the amount recognized on the balance sheet, with the exceptions discussed below.
In order to verify the robustness of the value in use of the CGUs, sensitivity analyses were conducted for the main drivers of the values, in particular WACC and the long-term growth rate, the outcomes of which fully supported that value.
The table below reports the composition of the main goodwill values according to the company to which the CGU belongs, along with the discount rates applied and the time horizon over which the expected cash flows have been discounted.
|Millions of euro||Amount||Growth rate (1)||Discount rate pre-tax WACC (2)||Explicit period of cash flows||Terminal value (3)|
|at Dec. 31, 2013|
|Endesa-Iberia (4)||8,607||1.80%||8.40%||10 years||Perpetuity|
|Endesa-Latin America||3,260||-(5)||8.90%||10 years||Perpetuity|
|Enel OGK-5||263||1.20%||12.20%||10 years||Perpetuity|
|Slovenské elektrárne||697||1.00%||8.80%||10 years||Perpetuity|
|Enel Romania (6)||660||2.40%||9.90%||10 years||Perpetuity|
|Enel Energia||579||0.70%||12.70%||10 years||10 years|
|EGP Espa–a||403||2.00%||7.90%||5 years||14 years|
|EGP Latin America||262||3.40%||8.50%||5 years||23 years|
|EGP North America||103||2.10%||7.70%||5 years||19 years|
|EGP Hellas||33||2.00%||13.60%||10 years||18 years|
|Nuove Energie||26||0.70%||9.90%||10 years||17 years|
|EGP Portoscuso and other minor||21||2.00%||10.00%||10 years||18 years|
|EGP France||29||1.90%||7.60%||5 years||19 years|
|EGP Romania||13||2.40%||10.60%||10 years||13 years|
|EGP Bulgaria||5||3.00%||8.20%||10 years||11 years|
|PowerCrop||9||2.00%||11.50%||10 years||7 years|
|EGP Finale Emilia||3||2.00%||12.00%||10 years||7 years|
|EGP South Africa||1||1.90%||9.80%||5 years||23 years|
|Millions of euro||Amount||Growth Rate (1)||Discount rate pre-tax WACC (2)||Explicit period of cash flows||Terminal value (3)|
|at Dec. 31, 2012|
|Endesa-Iberia (4)||8,607||1.90%||8.00%||10 years||Perpetuity|
|Endesa-Latin America||3,260||- (5)||9.50%||10 years||Perpetuity|
|Enel OGK-5||1,145||1.20%||13.30%||10 years||Perpetuity|
|Slovenské elektrárne||697||1.00%||9.60%||10 years||Perpetuity|
|Enel Romania (6)||661||2.40%||10.30%||10 years||Perpetuity|
|Enel Energia||579||0.40%||11.50%||10 years||10 years|
|EGP Espa–a||407||2.00%||8.40%||5 years||17 years|
|EGP Latin America||270||3.40%||9.90%||5 years||21 years|
|EGP North America||107||2.20%||7.70%||5 years||20 years|
|EGP Hellas||38||2.00%||16.80%||10 years||20 years|
|Nuove Energie||26||0.40%||9.20%||10 years||18 years|
|EGP Portoscuso and other minor||25||2.00%||10.10%||10 years||15 years|
|EGP France||24||1.90%||7.80%||5 years||18 years|
|EGP Romania||13||2.40%||11.50%||5 years||20 years|
|EGP Bulgaria||5||3.00%||9.30%||10 years||12 years|
|EGP Finale Emilia||-||-||-||-||-|
|EGP South Africa||-||-||-||-||-|
|Enel Stoccaggi||1||0.40%||8.80%||10 years||31 years|
(1) Perpetual growth rate of cash flows after explicit period.
(2) Pre-tax WACC calculated using the iterative method: the discount rate that ensures that the value in use calculated with pre-tax cash flows is equal to that calculated with post-tax cash flows discounted with the post-tax WACC.
(3) The terminal value has been estimated on the basis of a perpetuity or an annuity with a rising yield for the years indicated in the column.
(4) Goodwill includes the portion referring to EGP España.
(5) Growth rate equal to 4.0% (3.8% at December 31, 2012) for the first 10 years after the explicit period, followed by a perpetuity at a growth rate of 1.0% (1.0% at December 31, 2012).
(6) Includes all companies operating in Romania.
At December 31, 2013, impairment testing found impairment losses of €744 million on the Enel OGK-5 CGU. The assessment reflects, largely to the same extent as the other parameters used in the determination, the expected contraction in estimated future cash flows as a result of the persistent signs of a slowdown in economic growth and a consequent contraction in forecasts for price increases in the medium term. In particular, in 2013 the local government implemented a number of measures to contain energy spending that have helped heighten uncertainty concerning the timetable for the full liberalization of gas prices in Russia, which is considered a key step in making the electricity industry attractive to foreign investors, making it possible to upgrade plants.
At December 31, 2012 the following impairment losses had been recognized:
- €2,392 million on the Endesa-Iberia CGU, to reflect the decrease in the expected cash flows from the assets belonging to the CGU, partly as a result of various measures adopted by the Spanish government in the energy field during 2012, and from the rise in country risk, which is factored into the discount rate;
- €112 million on the Enel OGK-5 CGU, reflecting the emergence of the first signs of a change in industry conditions, prompting management to recognize a deterioration in the earnings potential of the CGU.