2008 Registration Document - Rexel

14. Financial information concerning the assets andliabilities, financial position and profits and lossesof RexelChange in consolidation scope in 2008Distribution networks and banners relate to assets acquiredthrough the combination with of Hagemeyer (see note 3.1).Software and other intangible assets include: (i) customerrelationships with key Hagemeyer and Sonepar Swedenindustrial customers for €52.0 million with useful lifebetween five and ten years, (ii) distribution agreementsrelating to the ACE division business for €19.2 million withan average useful life of six years and (iii) softwares acquiredin the normal course of business.GoodwillGoodwill arising in a business combination represents futureeconomic benefits arising from assets that are not capableof being identified individually according to IFRS, such asmarket shares; the assembled work force and the potentialto develop existing businesses. In the wholesale business,such synergies notably include those expected in terms ofpurchasing, logistics, network density and administration.Goodwill is allocated by country based on the value in usedetermined in accordance with note 2.7. Goodwill arising onHagemeyer acquisition, determined on provisional basis atDecember 31, 2008, was allocated, for impairment testingpurposes, to the reporting segment Europe which benefitsfrom the synergies of the acquired business.Cash flow projections used to calculate the value-inuseof each cash-generating unit are based on the threeyear financial budget reviewed by Senior Managementin December 2008 and extrapolated over a period of fiveyears after taking into account a terminal value.The calculation of value-in-use of cash generating unitsis sensitive to the discount rate and the perpetual growthrate to extrapolate cash flows beyond the horizon ofprojections.The discount rate applied was determined on the basis ofthe weighted average cost of capital after tax calculated foreach country. The weighted average cost of capital reflectsthe time value of the money and the risk specific to theasset for which cash flow projections have not already beenadjusted, considering the financial structure and conditionsof an average market participant.A single perpetual growth rate of 2.0% was used to calculatethe terminal value, without any change compared to 2007.This rate extrapolates the expected long-term inflation onmature markets.The following discount rates were used to assess the valuein-use:2008 2007Europe 7.2% to 12.2% 6.2% to 11.0%North America 7.4% to 7.6% 7.3% to 7.9%Asia-Pacific 8.4% to 10.2% 7.8% to 9.5%This resulted in an impairment loss of €85.0 million (€8.2in 2007) due to global economic and market downturnoccurred in 2008.Sensitivity analysisAs of December 31, 2008, discount rates up 50 basis pointswould result in an €69 million increase in the impairmentcharge. A decrease of 50 basis points in the perpetualgrowth rate would result in a €32 million increase in theimpairment.Intangible assetsIn accordance with the principle described in note 2.5distribution networks and strategic partnerships are notamortized but rather tested annually for depreciation or assoon as there is an indication of impairment.At December 31, 2008 distribution networks and strategicpartnerships were tested for impairment together withgoodwill based on similar hypothesis. As a result of theeconomic downturn occurred in the fourth quarter of 2008,customer relationships recognized in Spain as part of theHagemeyer purchase price allocation were impaired by€2.5 million out of €14 million.PAGE 180 | REXEL 2008