Integrated Annual Report 2018
183
Financial statement and notes / Group
NOTE 7 - INVENTORY INVENTORY (EUR MILLION)
2018
2017
Raw materials and goods in process
129.3
143.0
Finished goods
156.2
164.0
Total inventory
285.5
306.9
The amounts above are net after provision for obsolete goods, EUR 3.1 million (2017: EUR 8.6 million). The amount of inventory recognised as an expense during the period totaled EUR 1 491.1 million (2017: EUR 1 394.7 million).
NOTE 8 - IMPAIRMENT TESTING OF INTANGIBLE ASSETS At year-end 2018, the market value of the Group’s equity was significantly higher than the carrying amount of equity, which is an indication that the market considers the value of the Group’s assets to exceed the carrying amount. For all cash generating units (CGUs), the recoverable amount has been determined based on a value-in-use calculation using cash flow projections based on approved budgets for the first year. The three next years are based on the approved long-term plan. The cash flow projections beyond the fourth year are estimated by extrapolating the projections reflecting steady-state operations. The net present value of the cash flow is compared to the carrying amount in the CGU. If the carrying amount is higher than the calculated value in use, an impairment loss is recognised in profit or loss, reducing the asset value to the calculated value in use. The estimated cash flows are based on the assumption of continued operation as part of the Mowi Group. There has been no changes in the identified CGUs for the year 2018.
the margin for the years beyond (2020-2022). For the terminal value in the Farming entities the EBIT pr kg has been set at EUR 0.7. Capital expenditure
In the five-year forecast period, the capital expenditure necessary to meet the expected growth in revenue and profit is taken into consideration. Consistent with the Group’s plan, the capital expenditure level for 2019 is high to further grow the operations. Beyond 2019, capital expenditures are aligned with growth and replacement plans. Capital expenditure to comply with current laws and regulations has been included. Capital expenditure related to committed and approved efficiency improvement programs has also been included to support the inclusion of the benefits in the applied margin. Changes in applicable laws and regulations may affect future estimated capital expenditure needs; this is not reflected in the figures used in the impairment test. Beyond the forecast period, capital expenditure will in general equal depreciation and relate to maintenance investments.
K E Y ASSUM P TI O NS
The key assumptions used in the calculation of value in use are harvested volume, EBIT(DA)/margins, capital expenditure, discount rates and the terminal growth rates. Please see the table below for a summary of the key assumptions for each CGU.
Discount rate
The expected harvest volume is based on the fish currently being held at sea, forward stocking plan and adjusted for the expected future increase in production given today's licenses. This evaluation has been performed CGU by CGU and is updated yearly.
The discount rates are based on the Weighted Average Cost of Capital (WACC) methodology. The cost of equity is based on Capital Asset Pricing Model (CAPM). The cost of debt is based on the risk-free rate in the applicable country. In the model, a five-year average of the ten-year risk-free rate has been used. Calculation of the final discount rates (WACC) also takes into account market risk premium, debt risk premium, gearing and beta value. In the calculations, the Group has applied estimated cash flows before tax and the corresponding discount rates before tax.
EBIT(DA)/Margins
Terminal growth rates
The key profit target for salmon farming and sales is EBIT per kg, while value-added operations are measured in terms of EBIT/EBITDA in % of sales. EBIT per kg is highly volatile due to fluctuations in the price of salmon. Costs can under normal circumstances be forecast with a relatively high level of accuracy. As Mowi has entered into long-term sales contracts for a proportion of the volume to be harvested in 2019, the margin for 2019 can be forecasted with a higher level of accuracy than
Growth after the five-year forecast period has in general been set independently for each cash-generating unit based on the five year average historic inflation rate. The maximum growth rate applied beyond the forecast period is 1.5%. This is lower than the expected growth rates in the first five years and lower than the historic growth rate in salmon demand.
Harvest volume