Note 18. Intangible assets and goodwill

Internally generated intangible assets are referring to capitalized IT costs and capitalized development cost related to R&D.

Impairment testing

An impairment test has been performed at the end of 2024 indicating that there is not any need to write down the goodwill.

Three of Alfa Laval’s operating segments, the three business divisions “Energy”, “Food & Water” and ”Marine” have been identified as the cash-generating units within Alfa Laval. Technically a recently acquired business activity could be followed independently during an initial period, but acquired businesses are normally integrated into the divisions at a fast rate. This means that the independent traceability is lost fairly soon and then any independent measurement and testing becomes impracticable.

The recoverable amount of the cash-generating units is based on their value in use, which is established by calculating the net present value of future cash flows. The net present value is based on the projected EBITDA figures for the next five years, less projected investments and changes in operating capital during the same period and thereafter the perceived expected average industry growth rate.

This projection is based on the following components:

• The projection for 2025 is based on the Group’s normal 12 month revolving ”Forecast” reporting. This is based on a number of assumptions concerning the business cycle, volume growth, market initiatives, product mix, currency rates, cost development, cost structure, R&D etc.
• The projection for the years 2026 till 2029 is based on Management’s general assumptions concerning the business cycle, volume growth, market initiatives, product mix, currency rates, cost development, cost structure, R&D etc.
• The projection for the years 2030 and onwards is based on the perceived expected average industry growth rate of 2.25 (2.25) percent.

The assumptions used for the projections reflect past experiences or information from external sources.

The used discount rate is the pre-tax weighted average cost of capital (WACC) of 9.64 (9.97) percent.

A sensitivity analysis has been performed simulating an increase in WACC with 1% or a reduction in terminal growth with 1%. The carrying amounts still exceed the recoverable amounts in these simulations.

Alfa Laval does not have any intangible assets with indefinite useful lives other than goodwill.

Goodwill has been allocated to the following cash-generating units: