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17 Goodwill

 
 31-dec-1131-dec-10Changes
Goodwill 320,972 320,791 181
Goodwill from consolidated procedure56,78856,788                                             -  
Total 377,760 377,579 181

The main values are as follows:

  • residual goodwill from the 2002 integration resulting in the creation of Hera Spa, Euro 81,258 thousand;
  • goodwill relating to the integration of Agea SpA in 2004, for Euro 41,659 thousand. Said goodwill represents the additional value of the purchase cost compared to the fair values of the Group's portion of assets and liabilities recorded. In particular, with regard to the current value of Hera Spa shares issued following the increase in capital for the merger by incorporation of Agea spa, in accordance with IFRS 3 the share value was calculated as at the effective date control was taken of Agea Spa (1 January 2004);
  • goodwill and goodwill from consolidation procedure, related to the integration operation of the Meta Group, Euro 117,686 thousand. This goodwill, entered in assets and initially measured at cost, represents the additional value of the purchase cost compared to the fair value of the assets and liabilities recognised for the Group. Specifically, with regard to the current value of Hera Spa shares issued following the increase in capital to service the merger by incorporation of Meta Spa, this value was calculated as at the end of 2005, accepted as the effective date that control was taken of Meta Spa;
  • goodwill relating to the merger of Geat Distribuzione Gas Spa into Hera Spa. This goodwill of Euro 11,670 thousand represents the excess purchase cost over and above the fair value of assets and liabilities recognised for the Group as at 1 January 2006 (the date at which effective control was taken by Hera Spa);
  • goodwill relating to the merger of Sat Spa. This goodwill of Euro 54,883 thousand represents the excess acquisition cost over and above the fair value of the assets and liabilities recognised for the Group.
    Specifically, with regard to the fair value of Hera SpA shares issued following the increase in capital from the merger by incorporation of Sat SpA, this value was calculated as at 1 January 2008, the date at which take-over became effective.


The increase compared to the previous year is due mainly to the transfer of the gas distribution service in some Modenese municipalities by the CIMAF Consortium.

The main "goodwill from consolidation procedure" arises from the following companies consolidated on a line by line basis:

  • Marche Multiservizi Spa, Euro 20,790 thousand;
  • Hera Comm Marche Srl, Euro 4,565 thousand;
  • Medea Spa, Euro 3,069 thousand;
  • Asa Scpa, Euro 2,789 thousand;
  • Hera Luce Srl, Euro 2,328 thousand;
  • Gastecnica Galliera Srl, Euro 2,140 thousand;
  • Nuova Geovis Spa, Euro 1,775 thousand.


The remaining goodwill and goodwill from consolidation procedure items refer to minor operations.

As required by the reference accounting standards (IAS 36) goodwill undergoes impairment testing. The following table shows the allocation of this item to the cash generating unit or group of units in accordance with the maximum aggregation limits that may not exceed the business segment identified in accordance with IFRS 36.

Goodwill
(mln€)
 
Gas107.3
Electricity43.2
Integrated water cycle41.2
Waste management174.5
Other services10.0
Structure1.6
Total goodwill 377.8

The impairment therefore involved gas, electricity, integrated water cycle, waste management and other services business areas. The recoverable value of the cash generating units, to which the separate goodwill was attributed, was reviewed by determining the value in use, meant as the current value of the discounted cash flows (duly discounted according to the discounted cash flow method) taken from the business plan prepared for the 2011-2015 period, approved by the Board of Directors of the Parent Company. The current value of an irredeemable debenture, calculated based on last year flows and taking account, for the water cycle only, of the gradual achievement of the full capital payment, as provided for by the current regulations, are added to said flows. In the developed hypothesis, the non-renewal of concessions was taken into consideration, in an estimated percentage of 20%. At the same time, a similar percentage was considered to determine the flow, equal to the net accounting value of assets, which will be redeemed.

While drawing up the Business Plan, which consolidates the Group perspective activities, assumptions consistent with those used in previous plans were used. These assumptions were defined based on final figures, projections internally processed and compared with external sources.

The development of revenues was processed based on the evolution of tariffs for the businesses governed by business unit regulations and/or agreements with the competent Authorities. In particular, revenues from the gas distribution market are projected based on evidence arising from Resolution no. 159/08 and, as for electricity distribution, based on Resolution no. 348/07 of the Italian Authority for Electricity and Gas. Revenues on the sale of gas and electricity on the non-eligible market were projected to 2015, based on Resolutions no. 64/09 and 156/07, respectively, of the Italian Authority for Electricity and Gas. As for the water cycle, revenues were projected based on both the immobility of volumes distributed and the fees referring to agreements signed, or being signed when the Plan was drawn up, with the single local AATOs. As for urban hygiene, the assumption of full tariff coverage was formulated over the term of the plan on all local areas supplied, pursuant to law.

Changes in the prices of gas and electricity sold and purchased on the free market were processed based on business opinions expressed by internal bodies in charge of analysing these factors, and in compliance with the energy scenario set forth when the business plan was started. The latter was drawn up by a panel of institutional observers according to the best forecasts.

The development of plants for the disposal and recovery activities in the waste management cycle is consistent with estimates made in the plans in the provinces where the Hera Group operates. The scheduling for the realisation of investments and the following start-up of the new plants is the result of the best estimate of technical structures, in compliance with each planning process.

Cost evolution was consistent with the projected inflation considered in the economic and financial Planning Document and, as regards staff, with indications contained in the various work contracts. Effectiveness and synergies were planned in compliance with operations that the Group has carried out over the last few years.

The investment plan is consistent with the maintenance requirements of plant efficiency. This plan is supplemented by investment and development expectations in both initiatives which grant full economic benefit at full production within the term of the Plan, and development initiatives which will grant an economic return after the term of the Plan. The single "relevant" investments were specifically evaluated as for the economic return and strategic importance in the pertaining industrial sector.

The Plan definition, as in past years, saw huge involvement from each single company and profound interaction with management at various organisational levels, over a period of more than 5 months.

According to the aforementioned remarks, the basic assumptions that underlined the development of the impairment test, were formulated by the management, bearing in mind the remaining lifetimes of the reference concessions, on the basis of medium/long term growth rates differentiated by individual asset and expected growth in the respective generating unit sectors (2% on average).

The rate used to discount back the flows is 6.82% after taxes.

As the test results were positive, it was unnecessary to adjust the recorded values provided above. It is worth noting that the outcome of the above mentioned procedures has been specially approved by the Board of Directors of the Parent Company, as recommended by provisions set forth by Consob, Bank of Italy and ISVAP.


 

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