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McPHERSON’S LIMITED
ANNUAL REPORT 2015
NOTE 16. INTANGIBLE ASSETS (CONTINUED)
In addition, it is noted that the year one cash flow projection is a key assumption within the value-in-use calculations. The cash flow projections
used for the year one cash flows are based on the Board approved financial budgets/forecasts. The budgets reflect the Board’s expectation of
improved cash flows, for the Australian (excl Home Appliances) cash-generating unit, arising from profit optimisation initiatives, new product
launches and the full year impact of acquisitions and agency agreements. At 30 June 2015, the value-in-use calculations for all cash generating
units exceeded the carrying value of their net assets. The surplus amount within the Australia (excluding Home Appliances) calculation is
$16,713,000 (June 2014: $44,579,000). The surplus amount within the Home Appliances calculation is $21,144,000 (June 2014: $16,090,000). The
surplus amount within the New Zealand calculation is NZD$127,000 (June 2014: NZD$10,743,000).
Impairment charge
During the current year an impairment charge of $372,000 was recognised against the goodwill allocated to the Group’s New Zealand cash
generating unit. The recoverable amount used in the goodwill calculations was based on a value-in-use model. The impairment charge was a direct
result of the decision to divest a minor single branded part of the business.
The impairment charge is included within the New Zealand reportable segment disclosed within Note 7 Segment Information. The discount rate
and other key assumptions used in the value-in-use calculations are disclosed above.
During the prior year an impairment charge of $80,000,000 was recognised against the Australian cash generating unit (excluding Home
Appliances), with $78,243,000 of this charge being recognised against goodwill and the remaining $1,757,000 being recognised against certain
brandnames. The recoverable amount used in the goodwill calculations was based on a value-in-use model. The impairment charge was a direct
result of the reduced earnings being generated by the Group’s Australian operations (excluding Home Appliances).
The impairment charge was included within the Australian reportable segment disclosed within Note 7 Segment Information. The discount rate and
other key assumptions used in the value-in-use calculation are disclosed above.
Impact of possible changes in key assumptions
If the year one earnings before interest and tax (EBIT) used in the value-in-use calculation for the Australian (excluding Home Appliances) cash
generating unit were to be 10.0% below the current estimated EBIT the surplus within the calculation would reduce to $4,135,000.
If the post-tax discount rate used in the value-in-use calculation for the Australian (excluding Home Appliances) cash generating unit was to be 1.0
percentage point higher than management’s estimate (10.8% instead of 9.8%) the surplus within the calculation would reduce to $4,521,000.
If the terminal year growth rate used in the value-in-use calculation for the Australian (excluding Home Appliances) cash generating unit was to be
1.0 percentage point lower than management’s estimate (1.0% instead of 2.0%) the surplus within the calculation would reduce to $6,919,000.
If the year one earnings before interest and tax (EBIT) used in the value-in-use calculation for the Home Appliances cash generating unit were to be
10.0% below the current estimated EBIT the surplus within the calculation would reduce to $15,144,000.
If the post-tax discount rate used in the value-in-use calculation for the Home Appliances cash generating unit was to be 1.0 percentage point
higher than management’s estimate (11.0% instead of 10.0%) the surplus within the calculation would reduce to $13,796,000.
If the terminal year growth rate used in the value-in-use calculation for the Home Appliances cash generating unit was to be 1.0 percentage point
lower than management’s estimate (2.0% instead of 3.0%) the surplus within the calculation would reduce to $15,108,000.
If the year one earnings before interest and tax (EBIT) used in the value-in-use calculation for the New Zealand cash generating unit were to be
10.0% below the current estimated EBIT an impairment loss of NZ$829,000 would arise.
If the post-tax discount rate used in the value-in-use calculation for the New Zealand cash generating unit was to be 1.0 percentage point higher
than management’s estimate (11.25% instead of 10.25%) an impairment loss of NZ$789,000 would arise.
If the terminal year growth rate used in the value-in-use calculation for the New Zealand cash generating unit was to be 1.0 percentage point lower
than management’s estimate (1.0% instead of 2.0%) an impairment loss of NZ$599,000 would arise.
Brandnames
Brandnames are tested for impairment on an individual basis annually and more frequently if events or changes in circumstances indicate that they might
be impaired. The recoverable amount of a brandname is determined based on the higher of value-in-use or fair value less costs to sell calculations.
The value-in-use calculations are prepared using a discounted cash flow analysis of the future net contribution expected to be generated by the
brand, which is based on financial budgets/forecasts covering a one year period. Cash flows beyond the projected period are extrapolated using
estimated growth rates. In performing the value-in-use calculations the Group has applied a post-tax discount rate to discount the forecast future
attributable post-tax cash flows.
During the current year an impairment charge of $265,000 was recognised as a result of the Australian business deciding to discontinue one minor brand.
The assumptions used in the value-in-use calculations, for all brandnames tested using this method, are set out below.
2015
2014
Estimated growth rates
1.0% - 3.0%
1.0% - 3.0%
Post-tax discount rates
9.8% - 10.0%
11.5%
Pre-tax discount rate equivalents
13.0% - 13.1%
15.1%
NOTES TO AND FORMING PART OF THE
CONSOLIDATED FINANCIAL STATEMENTS CONTINUED