Annual Reports Keepmoat Homes Annual Report 2018 | Page 48

Notes to the consolidated financial statements
9 – Goodwill and other intangible assets (continued)
Impairment review of goodwill
The Group tests goodwill annually for impairment or more frequently if there are indications that goodwill might be
impaired. In testing goodwill and other intangible assets for impairment, the recoverable amount of each cash-generating
unit has been determined from value in use calculations.
The key assumptions for the value in use calculations are those regarding the forecast revenue and profit, discount rates and
long-term growth rates by market sector. Future forecast revenue is based on management’s knowledge of actual results
from prior years and latest forecasts for the current year, along with secured works, and management’s expectation of the
future level of work available within the market sector. In establishing future profit margins, the margins currently being
achieved are considered in conjunction with expected inflation rates in each cost category.
Cash flows beyond the five-year plan period are extrapolated using an estimated growth rate of 0.5% (2017: 0.5%) per
annum. The growth rate used is the Group’s estimate of the average long-term growth rate for the market sectors in which
the CGU operates. A pre-tax discount rate of 10.5% (2017: 11.0%) has been applied, being the estimated weighted average
cost of capital.
The Group applied sensitivities to the assumptions used in the cash flows noted above and the sensitivities resulted in
headroom which was materially above the carrying value.
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