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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 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 techniques. Correct
identification of indicators of potential impairment 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 the Energy segment’s CGU for the country
Spain. Furthermore, 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 recoverable amounts below their net book
value due to particular market circumstances.
The outcome of impairment tests at 31 December 2013 does
not mean that future results will be the same, especially
if there are 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) Revenue recognition for construction contracts
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 variants, 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
jurisdictions. 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 outstanding tax assessments 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
metals are followed by order cancellations, the loss in the
value of inventories may not be fully offset by the penalties
charged to customers for cancelling their orders.
(g) Employee benefit obligations
The present value of the pension plans reported in the
financial statements depends on an independent actuarial
calculation and on a number of different assumptions. Any
changes in assumptions and in the discount rate used are
duly reflected in the present value calculation and may
have a significant impact on the consolidated figures. The
assumptions used for the actuarial calculation are examined
by the Group annually.
Present value is calculated by discounting future cash flows at
an interest rate equal to that on high-quality corporate bonds
issued in the currency in which the liability will be settled and
which takes account of the duration of the related pension plan.
