BUSINESS OPERATIONS AND VALUE CREATION
Impairment testing Depreciation is not recognised for assets with indefinite useful lives. Instead, such assets are tested for impairment annually. Assets that are subject to depreciation are always tested for impairment when events or changes in conditions indicate that it is possible that the monetary amount corresponding to the book value of the assets might not be recoverable. Cash-generating units are reporting segments or smaller units for which a utility value can be defined. The recoverable amount is the higher of the fair value of an asset less the cost of sale, and its value in use. Value in use is the estimated future net cash flows, discounted to their present value, expected to be derived from said asset or cash-generating unit. An impairment loss is recognised if the carrying amount of the asset is higher than its recoverable amount. If the impairment loss concerns a cash-generating unit, it is first allocated to decrease the goodwill of the cash-generating unit, and thereafter to decrease the other
assets of the unit on pro-rata basis. In connection with the recognition of the impairment loss, the useful life of the depreciated asset is re-evaluated. An impairment loss recognised for an asset other than goodwill is reversed if a change has taken place in the estimates used to determine the recoverable amount of the asset. However, the maximum reversal of an impairment loss amounts to no more than the carrying amount of the asset if no impairment loss had been recognised. An impairment loss recognised on goodwill is not reversed under any circumstances.
Key estimates and judgements
Future cash flows The recoverable amounts of cash-generating units are based on calculations of value in use. The management’s key estimates in the calculations concern the product price developments, delivery vol- umes, the development of costs related to key raw material costs and other costs, as well as the discount rate and long-term growth rate.
Impairment testing 2022 Metsä Board carries out impairment testing once a year, during the fourth quarter, based on the situation on 30 September, or more frequently if signs of a possible impairment are detected. The group did not recognise impairments based impairment testing in 2022. In the testing carried out in 2022, a somewhat potential change in any individual key assumption would not lead to the recognition of an impairment. The group’s key impairment testing and key assumptions in the situation on 30 September 2022:
Long-term growth rate on 30 September 2021
Discount rate after taxes on 30 September 2022
Discount rate after taxes on 30 September 2021
Long-term growth rate on 30 September 2022
Goodwill EUR million
Brand EUR million
Cash-generating unit Paperboard industry Folding boxboard 1)
7.21% 7.21% 7.21%
5.78% 5.78% 5.78%
2.0% 2.0% 2.0%
2.0% 2.0% 2.0%
Market pulp 1)
1) Metsä Board’s share of Metsä Fibre’s recoverable cash flow, the book value and the goodwill included in the balance sheet item “Investments in associates and joint ventures” (45.2 millionEUR) and other intangible assets with unlimited economic life (EUR 5.6 million), are allocated to cash flow generating units in proportion to their pulp purchases.
The recoverable amounts of the cash-generating units being tested are based on five-year forecasts and the resulting, steadily growing cash flows. The initial value used for the key assumptions of the cash flows – prices and variable costs – after the forecast period is the average of the five-year forecast period. The value used for delivery volumes and fixed costs is the value of the forecast period’s fifth year. The key testing assumptions are management estimates and forecasts obtained from external sources of information. The discount rate used is the weighted average cost of capital (WACC). When calculating the WACC, the cost of debt takes into account the mar- ket-based view of the credit risk premium.
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