Notes to the balance sheet: assets

Non-current assets

6. Balance sheet items

6.1 Intangible assets

1 Transfers equal zero if the balances of ‘Intangible assets’ and ‘Property, plant and equipment’ (see note 6.3) are added up.

The implementation of ERP software (SAP) accounted for € 6.2 million (2008: € 4.2 million) of the expenditure. The rights to use land, acquired in 2008 for new plants in Jiangyin and Chongqing in China, have a carrying amount of € 8.1 million (2008: € 8.1 million). Licenses, patents and similar rights consist mainly of intellectual property relating to the specialized films activity acquired in 2001, with a carrying amount of
€ 4.3 million (2008: € 7.0 million). Other intangible assets predominantly consist of customer lists and trade marks acquired in a business combination. The carrying amount mainly relates to Cold Drawn Products Ltd (€ 2.2 million vs. € 3.7 million in 2008), Bekaert Corporation
(€ 1.7 million vs. € 2.0 million in 2008) and Ideal Alambrec SA (€ 1.2 million), in which Bekaert gained control in 2009. For advanced filtration, the intangible asset recognized at the time of the business combination in 2005 has been fully impaired now.

No intangible assets have been identified as having an indefinite useful life at the balance sheet date.

6.2 Goodwill

This note relates only to goodwill on acquisition of subsidiaries. Goodwill in respect of joint ventures and associates is disclosed in note 6.4 ‘Investments in joint ventures and associates’.

The reclassification as held for sale relates to the Diamond Like Coatings activity, which was classified as held for sale in 2008 and declassified as such in 2009.

Goodwill by cash-generating unit (CGU)

Goodwill acquired in a business combination is allocated on acquisition to the cash-generating units (CGU) that are expected to benefit from that business combination.
The goodwill allocation has been aligned with the new segment reporting.

The carrying amount of goodwill and related impairment have been allocated as follows:

1 This cash-generating unit was classified as held for sale at 31 December 2008, and has been reclassified to goodwill again in 2009.

Cash-generating units to which goodwill has been allocated are tested for impairment at least annually on the basis of their value in use, applying the following assumptions:

  • The time horizon is normally 12 years (average lifetime of equipment) but can differ case by case.
  • The future free cash flows are based on the latest budgeting/planning exercises for the coming 3 years. All cash flows thereafter are extrapolations made by the management of the cash-generating unit. Given the current economic crisis and the uncertain outlook in the midterm, the Group takes a conservative approach on extrapolations (no increase in sales and sales margins). No cost structure improvements are taken into account unless they can be substantiated.
  • The future cash flows are based on the assets in their current condition and do not include future restructuring not yet committed or future capital expenditures improving or enhancing the assets in excess of their originally assessed standard of performance. Only that capital expenditure required to maintain the assets in good working order is included. The cash outflows relating to working capital are calculated as a percentage of incremental sales based on the past performance of the specific cash-generating unit.
  • The discount factor is based on a (long-term) pre-tax cost of capital, the risks being implicit in the cash flows. A weighted average cost of capital (WACC) is determined for Euro, US dollar and Chinese renminbi regions. For countries with a higher perceived risk, the WACC is raised with 1% or 2%. The WACC is pre-tax based, since relevant cash flows are also pre-tax based. Similarly, it is stated in real terms (without inflation), since cash flows are also stated in real terms. In determining the weight of the cost of debt vs. the cost of equity, a target gearing (net debt relative to equity) of 50% is used. The discount factors are reviewed at least annually.

The tests resulted in an impairment of the goodwill in 2009 for Combustion – drying EMEA (Solaronics) and Diamond Like Coatings on the grounds that the results were not in line with the original business plans and short-term improvements are uncertain. No write-down of the carrying amounts of other assets in the cash-generating unit was necessary for Combustion – drying EMEA. For Diamond Like Coatings, the test resulted in an additional impairment of PP&E of € 1.3 million.

Based on current knowledge, reasonable changes in key assumptions (including discount rate, sales and margin evolution) would not generate material impairments for any of the other cash-generating units.

6.3 Property, plant and equipment

1 Difference in expenditure because of investment grants which are netted in the cash flow statement.
2 Transfers equal zero if the balances of ‘Intangible assets’ (see note 6.1) and ‘Property, plant and equipment’ are added up.

The investment programs in Belgium, China, India, United States, Russia and Slovakia accounted for most of the expenditure. The net exchange loss for the year (€ -21.7 million) relates mainly to exchange losses on assets denominated in US dollars (€ -6.1 million) and Chinese renminbis (€ -20.0 million) and exchange gains on assets denominated in British pounds (€ 0.5 million), Columbian pesos (€ 0.8 million), Peruvian nuevos soles (€ 1.2 million), Canadian dollars (€ 1.2 million) and Czech korunas (€ 0.4 million). Impairment losses were recognized on assets located in Belgium, mainly related to restructuring programs announced in 2008 and the Diamond Like Coatings business in the US. The methodology for impairment testing is consistent with the one presented in note 6.2 ‘Goodwill’. For reclassifications to or from held for sale, please refer to note 6.10 ‘Assets classified as held for sale and liabilities associated with those assets’.
No items of PP&E are pledged as securities.

6.4 Investments in joint ventures and associates

Investments excluding related goodwill

For an analysis of the result for the year, please refer to 5.6 ‘Share in the results of joint ventures and associates’. For the changes in consolidation method, please refer to the footnotes attached to the table analyzing the Group’s share in equity of the joint ventures below. Exchange gains and losses relate mainly to the substantial swings in closing rates of both the Brazilian real (2.5 in 2009 vs 3.2 in 2008) and the Chilean peso (729.5 in 2009 vs 884.3 in 2008).

Related goodwill

Combined items

The Group’s share of the assets, liabilities and results of joint ventures and associates (excluding related goodwill) is summarized below:

The Group’s share in the equity of joint ventures and associates is analyzed as follows:

No major contingent assets relating to joint ventures and associates have been identified at the balance sheet date. The main contingent liabilities identified at the balance sheet date relate to taxes at Belgo Bekaert Arames Ltda, Belgo Bekaert Nordeste SA and BMB-Belgo Mineira Bekaert Artefatos de Arame Ltda. These Brazilian joint ventures are faced with problems to recover ICMS tax receivables with a total carrying amount of € 18.5 million, claims relating to ICMS incentives in 2006 totaling € 7.7 million and several other tax claims, most of which date back several years, for a total nominal amount of € 38.7 million. Evidently, any potential losses resulting from the above-mentioned contingencies would only affect the Group to the extent of their interest in the joint ventures involved (i.e. 45%).

6.5 Other non-current assets

Available-for-sale financial assets - non-current

The substantial swing in fair value changes relates to the investment in Shougang Concord Century Holdings Ltd, a Hong Kong Stock Exchange listed company which is classified as available for sale. Its fair value increase in 2009 has nearly compensated the decrease incurred in 2008.

6.6 Deferred tax assets and liabilities

Recognized deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following items:

The deferred tax liabilities on property, plant and equipment and inventories include the impact of the exchange rate change in Venezuela
(an increase of € 7.9 million). The deferred tax liabilities on financial assets relate mainly to temporary differences arising from undistributed profits from subsidiaries, joint ventures and associates. Movements in deferred tax assets/(liabilities) arise from the following:

Unrecognized deferred tax assets

Deferred tax assets have not been recognized in respect of the following deductible items (gross amounts):

The majority of the trade losses have no expiry date while the balance will not expire in the near future.

Current assets

6.7 Operating working capital

Average operating working capital represented 24.1% of sales (2008: 21.5%). Operating working capital decreased by € 134.0 million in 2009, explained primarily by:

  • decrease of € 195.6 million related to organic negative growth (as reflected in the consolidated cash flow statement);
  • decrease of € 5.4 million from currency movements;
  • increase of € 8.7 million from net reversals of write-downs on inventories and trade receivables;
  • increase of € 0.6 million from reclassifications from assets and liabilities held for sale;
  • increase of € 57.7 million from new consolidations.

Additional information is as follows:

  • Inventories
    The cost of inventories recognized as an expense during the period amounted to € 1 731.4 million (2008: € 1 861.7 million), including net reversals of write-downs in 2009 of € 2.7 million (2008: net write-downs of € 17.9 million). No inventories were pledged as security for liabilities (2008: none).
  • Trade receivables
    Net reversals of write-downs in 2009 amounted to € 6.0 million (2008: net write-downs of € 13.4 million). More information about allowances and past due receivables is provided in the following table:

Regarding trade receivables that are neither impaired nor past due, there are no indications that the debtors will not meet their payment obligations. For more information on credit enhancement techniques we refer to note 7.3 ‘Financial risk management and financial derivatives’.

6.8 Other receivables

Other receivables relate mainly to taxes (€ 39.3 million (2008: € 44.3 million)), outplacement grants (€ 1.5 million (2008: nil)), reinsurance balances receivable (€ 1.1 million (2008: € 1.2 million)), employee loans (€ 2.3 million (2008: nil)) and investment grants (€ 1.9 million
(2008: nil)). No collection issues are expected.

6.9 Other current assets

The increase in current loans and receivables is mainly related to entrust loans provided to third parties in China.

6.10 Assets classified as held for sale and liabilities associated with those assets

The change in individual items of property, plant and equipment relates to the premises of the former Jiangyin Fasten-Bekaert Optical Cable Steel Products Co, Ltd (China) which have been classified as held for sale. Fasten Group agrees to buy back these premises before end of October 2010. As for the disposal groups, Precision Surface Technology Pte Ltd (Singapore) is still classified as held for sale. In 2009, the subsidiaries relating to the Diamond Like Coatings business have been declassified as held for sale, since the negotiations with the potential acquirer have been discontinued. Bekinit Kabushiki Kaisha (Japan) has been classified as held for sale as Bekaert intends to sell its majority interest in 2010. All of these amounts belong to the Asia Pacific segment.

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