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Consolidated Financial Report |
EXPLANATORY NOTES
2014 Annual Report
Prysmian Group
170
method. The reallocation was performed on the basis of
the value of net invested capital at 1 January 2013.
• the redefinition of the operating segments after
adopting the new organisational structure: this has
resulted in reallocating goodwill previously allocated to
the Energy segment to the new operating segments:
Energy Products and Energy Projects. The reallocation
was performed on the basis of the value of net invested
capital at 1 January 2014 (the date of the organisational
change).
More details about the impairment test for Goodwill can be
found in Note 2. Intangible assets.
Property, plant and equipment and finite-life
intangible assets
In accordance with the Group’s adopted accounting standards
and impairment testing procedures, property, plant and
equipment and intangible assets with finite useful lives are
tested for impairment. Any impairment loss is recognised by
means of a write-down, when indicators suggest it will be
difficult to recover the related net book value through use of
the assets. Verification of the existence of these indicators
requires management to make subjective judgements based
on the information available within the Group and from the
market, as well as from past experience. In addition, if an
impairment loss is identified, the Group determines the
amount of such impairment using suitable valuation techni-
ques. Correct identification of indicators of potential impai-
rment as well as the estimates for determining its amount
depend on factors which can vary over time, thus influencing
judgements and estimates made by management.
The Prysmian Group has assessed at year end whether there
is any evidence that its CGUs might be impaired and has
consequently tested for impairment those CGUs potentially
at “risk”. Based on this test, the Group has partially written
down the assets of certain CGUs within the Energy Products
segment for the following countries and regions: Italy,
Oceania and Germany. As for the Energy Projects segment,
the Group has recognised impairment losses against other
assets which, although belonging to larger CGUs for which
there was no specific evidence of impairment, had recove-
rable amounts below their net book value due to particular
market circumstances. In particular, an impairment loss has
been recognised against development costs relating to the
flexible pipes business within the SURF CGU.
Following the redefinition of the CGUs, the Group has
verified that if impairment had been calculated on the basis
of the previous structure, the effects recognised, comprising
impairment losses net of reversals, would not have been
substantially different from those recognised in the 2014
income statement.
The outcome of impairment tests at 31 December 2014 does
not mean that future results will be the same, especially in
the event of currently unforeseeable developments in the
business environment.
Further information can be found in Note 1. Property, plant
and equipment.
(c) Depreciation and amortisation
The cost of property, plant and equipment and intangible
assets is depreciated/amortised on a straight-line basis
over the estimated useful lives of the assets concerned. The
useful economic life of Group property, plant and equipment
and intangible assets is determined by management when
the asset is acquired. This is based on past experience for
similar assets, market conditions and expectations regarding
future events that could impact useful life, including changes
in technology. Therefore, actual economic life may differ
from estimated useful life. The Group periodically reviews
technological and sector changes to update residual useful
lives. This periodic update may lead to a variation in the
depreciation/amortisation period and therefore also in the
depreciation/amortisation charge for future years.
(d) Recognition of construction contract revenues and costs
The Group uses the percentage of completion method to
record construction contracts. The margins recognised in the
income statement depend on the progress of the contract
and its estimated margins upon completion. Thus, correct
recognition of work-in-progress and margins relating to as
yet incomplete work implies that management has correctly
estimated contract costs, potential contract variations, as
well as delays, and any extra costs and penalties that might
reduce the expected profit. The percentage of completion
method requires the Group to estimate the completion costs
and involves making estimates dependent on factors which
may change over time and could therefore have a significant
impact on current values. Should actual cost differ from
estimated cost, this variation will impact future results.
(e) Taxes
Consolidated companies are subject to different tax ju-
risdictions. A significant degree of estimation is needed
to establish the expected tax payable globally. There are a
number of transactions for which the relevant taxes are
difficult to estimate at year end. The Group records liabilities
for tax risks on the basis of estimates, possibly made with
the assistance of outside experts.
(f) Inventory valuation
Inventories are recorded at the lower of purchase cost
(measured using the weighted average cost formula for non-
ferrous metals and the FIFO formula for all others) and net
realisable value, net of selling costs. Net realisable value is
in turn represented by the value of firm orders in the order
book, or otherwise by the replacement cost of supplies or raw
materials. If significant reductions in the price of non-ferrous