10. Goodwill

The following table shows a reconciliation of the carrying amounts of goodwill for the periods presented in the consolidated financial statements as of March 31, 2013:

Impairment tests for cash-generating units containing goodwill

Goodwill is allocated to the following cash-generating units:

Automotive and Profilform Divisions’ CGUs were redefined in part as a result of their merger to create the Metal Forming Division as of April 1, 2012. Due to the strategic positioning and restructuring within the divisions, the Special Steel Division’s CGUs were also redefined. If a CGU’s goodwill was to be reallocated, it was done based on the relative value of the redefined CGUs. The previous year was adjusted accordingly.

With regard to the value in use, goodwill is reviewed for impairment applying the discounted cash flow method. The calculation is performed on the basis of cash flows before tax of a three-year medium-term business plan as of the beginning of March. This medium-term business plan is based on historical data as well as on assumptions regarding the expected future market performance.

The Group’s planning assumptions are extended to include sectoral planning assumptions. Intra-group evaluations are complemented by external market studies. The capital costs are calculated as the weighted average cost of equity and the weighted average cost of borrowed capital and using the capital asset pricing model (weighted average costs of capital). Cash flows are discounted using a pre-tax WACC of 7.96% (2011/12: 8.4%). Country risk is taken into account through a CGU-specific cash flow discount.

Estimates and assumptions used to measure the recoverable amounts of cash generating units with a significant share of the voestalpine Group’s total goodwill include:

Both external market forecasts for the sale of flat steel products in Europe as well as internal sales forecasts were used for the three-year medium-term business plan of the CGU Steel Division. The production plan reflects the sales forecasts. With respect to procurement, the assumptions regarding raw materials according to global market forecasts were adjusted by factors that are specific to the Group. In the calculation of impairment, the last plan year was used as a basis to determine the cash flows in the perpetual annuity. The perpetual annuity is based on an expected growth rate of 1%.

The three-year medium-term business plan for the CGU High Performance Metals (HPM) Production was prepared under consideration of both the CGU’s strategic orientation as well as the regional conditions in the core markets and reflects the general economic environment of the most important industry segments for the companies of the CGU. The external forecasts were supplemented by internal estimates. Changes in the cost of input materials due to the price of alloys can mostly be passed on to customers. The last plan year was used to calculate the perpetual annuity based on a growth factor of 1%.

The planning for the CGU Value Added Services was based on both the general economic environment of the relevant industry segments – adapted based on internal estimates – as well as the growth forecasts in the regional sales markets. Changes in this CGU’s material costs due to alloy prices can also be passed on to the market through so-called “alloy surcharges”. The perpetual annuity begins with the third plan year and is also based on a growth factor of 1%.

The planning process of the CGU Turnout Systems was based on the three-year detailed budgets and market forecasts of the individual companies assigned to the CGU. The planning also reflects their expectations with respect to the development of their respective general environments as well as the customers’ substantial estimated demand and internal forecasts. With regard to the primary factor cost developments, general forecasts of the development of personnel expenses and internal assumptions over the development of steel prices were integrated in the budgets. The perpetual annuity begins with the third plan year and is based on a growth factor of 1%.

In addition to the generally applicable forecasts for economic growth in the relevant core markets, in particular the development and potential in the focus industries defined for the segment were taken into account for the three-year medium-term business plan for the CGU Welding Consumables. The discounted cash flow method used in the course of the impairment tests is applied using a perpetual annuity based on the last detailed planning period. A growth factor of 1% was applied for the perpetual annuity.

The cash flow forecasts for the CGU Automotive Body Parts are oriented on the regional growth forecasts and/or the medium-term production forecasts for the pan-European automobile market. External forecasts were adjusted downward based on internal estimates. The last plan year was used to calculate the perpetual annuity based on a growth factor of 1%.

The three-year medium-term business plan for the CGU Precision Strip was prepared under consideration of the general regional conditions in the core markets and reflects the general economic environment of the most important industry segments for the companies of the CGU. The external forecasts were supplemented by internal estimates. The last plan year was used to calculate the perpetual annuity based on a growth factor of 1%.

The value of all goodwill was confirmed by the impairment tests. A sensitivity analysis showed that the carrying amounts would still be covered if the interest rate (7.96%) were to rise by 10% and there is no need to recognize an impairment loss.

The following cash-generating units and groups of cash-generating units contain intangible assets with indefinite useful lives:

Intangible assets with indefinite useful lives contain solely trademark rights. The period, during which these trademark rights are expected to generate cash flows is not subject to a foreseeable limit. Therefore, trademark rights do not depreciate and are not amortized.

Until business year 2010/11, a capital market funding advantage associated with the brand name Böhler-Uddeholm was contained in the brands with an indefinite useful life. In November 2011, the former BÖHLER-UDDEHOLM Aktiengesellschaft was renamed voestalpine Edelstahl GmbH. The funding advantage will decline continuously over the long term. The depreciation period is ten years.