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European goodwill impairments fall by 25% in 2013, study reveals

GOODWILL impairments across Europe have plummeted by a quarter, the latest study by Duff & Phelps has shown.

The 2014 European Goodwill Impairment study, prepared by the global valuation and corporate finance advisor and Mergermarket, showed a general improvement in the financial health of European companies in 2013, with goodwill impairments declining by 25% from the previous year.

Some 27.4% of companies within the STOXX Europe 600 recorded goodwill impairments in 2013 – a total of €49bn (£38bn), 25% down from 2012’s €66bn figure.

The study revealed that over two-thirds of all goodwill impairment was recorded in three industries: financials, utilities, and telecommunication services, with the financial sector reporting the most at €17.2bn.

Companies in Italy recorded the largest goodwill impairment at €16bn, followed by the UK at €15bn and France with €12bn.

Some 72% of respondents recognised goodwill impairment, compared to just 41% last year, but they reported a decline in their magnitude, with 77% impairing less than 20% of their goodwill balance in 2013.

Yann Magnan, Duff & Phelps managing director and valuation advisory services leader for Europe, said: “While overall impairment levels were down in 2013, the economic news of late forebodes challenging times ahead for the Eurozone.

“If this trend is confirmed, that may trigger further goodwill impairments in the near future, and as a consequence necessitate an even more thorough, robust, and well-documented assessment of future cash flows and valuation assumptions.”

The 2014 study analysed financial results from 2010-2013 of companies in the STOXX® Europe 600 Index, made up of large, mid and small cap companies across 18 European states. it also includes a survey of 240 European financial executives that focuses on goodwill impairment testing in accordance with IAS 36 Impairment of Assets.

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