The cash flows that were used for determining the impairments are based on the business plans drawn up by the business unit concerned for a period of at least five years. A weighted average discount rate is determined for each cash-generating unit, in line with those for comparable companies. The calculations that give rise to the impairments and their reversals are based on a weighted average post-tax discount rate of 5% (2018: 5%),
Assessment of impairments relating to Abellio
In view of the general economic climate, the challenges within the rail sector in the United Kingdom as well as in Germany and the lagging growth of passenger transport by rail in the United Kingdom, the Group identified indications of possible onerous contracts and asset impairments. As a result, NS performed analyses in line with the applicable rules.
Based on these analyses, it concluded that there were neither impairments nor onerous contracts as at 31 December 2019. The Group notes in this connection that the underlying analyses include significant estimation uncertainties.
There is a realistic risk that, in the future, significant impairments or provisions for onerous contracts will need to be recognised if the assumptions diverge individually or in the aggregate from the current best estimates.
The principal assumptions for the specific franchise contracts and assets are presented below.
Greater Anglia
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the growth rates of income from passenger transport during the remaining contract term;
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future forecasts for the contractual mechanisms for employment in central London (CLE) and the gross domestic product (GDP) and the supplementary fees contractually arising from this;
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the successful implementation of performance optimisation programmes initiated during the remaining contract term, and their timing;
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non-termination of the franchise contract before the end of the remaining term (October 2025);
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the result of the financial settlements of various contractual provisions and negotiations with third parties, such as Network Rail; and
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the WACC applied.
In the context of Brexit, the Group is closely following the possibilities of disruptions of services, cost increases and possible restrictions on operations resulting from a no-deal Brexit. The Group will collaborate with major partners and suppliers to minimise the disruption of services.
ScotRail
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the growth rates of income from passenger transport during the remaining contract term;
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the successful implementation of performance optimisation programmes initiated during the remaining contract term, and their timing;
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non-termination of the franchise contract before the end of the remaining term (March 2022);
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the result of the financial settlements of various contractual provisions and negotiations with third parties, such as Network Rail Scotland; and
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the WACC applied.
Abellio Germany
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the implementation of specific contractual provisions to arrive at additional compensation from the various commissioning parties, mainly with regard to compensation of increased wage costs and penalties owing to worsened punctuality, the causes of which are beyond the carrier's control;
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the successful implementation of performance optimisation programmes initiated during the remaining contract term, and their timing;
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the successful introduction of new trains for the Stuttgarter Netz franchise;
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non-termination of the franchise contracts before the end of the remaining term; and
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the WACC applied.
Abellio Germany has been designated a single cash-generating unit for assessing goodwill. The assessment of whether the contracts are potentially onerous is performed for each individual contract.
Accounting policies
The carrying amount of the Group’s non-current assets is reviewed every reporting date in order to determine whether there are indications of impairment. If such indications are found, an estimate is made of the recoverable amount of the asset concerned. For goodwill and intangible assets that are not yet available for use, the recoverable amount is estimated at each reporting date.
The recoverable amount of an asset or a cash-generating unit is the higher of the value in use and the fair value less costs to sell. In assessing the value in use, the present value of the estimated future pre-tax cash flows is calculated using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into identifiable groups of assets that generate cash flows from continuing use and that are largely independent of other assets or groups of assets (‘cash-generating units’). In impairment testing, the goodwill acquired in a business combination is allocated to the cash-generating units that are expected to benefit from the synergies of the combination.
An impairment loss is recognised if the carrying amount of an asset or the cash-generating unit to which it belongs exceeds its estimated recoverable amount. Impairment losses are recognised in the income statement. Impairment losses recognised in respect of cash-generating units are first deducted from the carrying amount of any goodwill allocated to the units, and then deducted from the carrying amount of the other assets in the unit or group of units on a pro rata basis.
Impairment losses in respect of goodwill are not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.