Hexagon Annual Report 2019

When there are indications that a company’s assets (including goodwill) may be impaired, an impairment test is conducted using the company’s weighted average capital cost (WACC) as an estimate for the discount rate (= return on assets ratio). Correspondingly, WACC is also used for annual impairment testing. The WACC rate which is used to discount future cash flows is based on 10-year risk-free interest rates in the market, the company’s borrowing interest, beta factor, equity ratio and market risk premium, adjusted for the liquidity risk and size of the company. Value in use is calculated by discounting future cash flows. Present value calculations are based on expected future cash flows for the different cash-generating units, as described above and the units are not expected to have a finite useful life. The projections take into account only modest forms of growth in the cash flows into perpetuity. The most important assumptions relate to estimates for operating income, operating margin and rates of return. A WACC of 8.5% after tax has been used for all companies. (NOK 1 000) 2019 2018 Hexagon Ragasco LPG 32 350 32 350 Hexagon USA Holdings Inc. 37 569 32 438 Hexagon Purus GmbH 369 348 372 512 Agility Fuel Solutions Holdings Inc. 935 615 Total goodwill 1 374 881 437 300 THE GOODWILL ITEMS OF THE FOLLOWING CASH FLOW GENERATING UNITS ARE SUBJECT TO IMPAIRMENT TESTING The assumptions that were used as a basis for the calculations made at the end of 2019 were met by good margins for all of the above. The recoverable amount is calculated based on the general assumptions referred to above. The calculations do not assume major changes in the level of activity or operating margins compared with the results achieved in 2019. In the prognosis period, an increase in the operating profit equal to the general growth in the economy is expected. OTHER ASSUMPTIONS FOR THE IMPAIRMENT TESTING OF GOODWILL In connection with the impairment testing of goodwill, the Group has carried out sensitivity analyses. These sensitivity analyses are carried out for each cash-generating unit. The present value of the cash flow in the calculations made is, among other things, sensitivity to changes in the discount rate. The sensitivity analysis uses the economic assumptions referred to above as its starting point. Calculations have been made based on one of the estimated economic assumptions being changed and in which the other economic assumptions remain unchanged. SENSITIVITY ANALYSES FOR THE GOODWILL The sensitivity analyses for the CGU demonstrate that recoverable amounts of Hexagon Ragasco, Hexagon Lincoln and Hexagon Purus goodwill exceed the recognized value by a good margin, and a reasonable change in key assumption (+/- 1.0% for WACC and +/- 2.0% on EBITDA margin) would not cause the carrying amount to exceed value in use. (NOK 1 000) 2019 2018 Cross-currency interest swap (see note on non-current interest-bearing debt) 44 859 Other non-current assets 4 133 367 Total other non-current assets 48 992 367 NOTE 12 OTHER NON-CURRENT ASSETS 37 123 2019 AT A GLANCE FROM THE BOARD ROOM FINANCIAL STATEMENTS