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74
Notes to the consolidated
fi nancial statements
Kingfi sher plc
Annual Report
and Accounts
2009/10
12 Goodwill continued
The recoverable amounts of these groups of CGUs have been determined based on value-in-use calculations. The groups of CGUs for which the carrying amount
of goodwill is deemed signifi cant are the UK and France. The key assumptions used for value-in-use calculations are set out below:
Assumptions
– The cash fl ow projections are based on fi nancial budgets and strategic plans approved by the Board covering a fi ve year period. These are based on both
past performance and expectations for future market development.
– Key drivers in the plans are like-for-like (‘LFL’) sales, margin and operating profi t percentage. LFL sales are based on the Group’s market expectations and the
CGUs’ market shares.
– Cash fl ows beyond this fi ve year period are calculated using a growth rate of 1.9% (2008/09: 1.9%) which does not exceed the long term average growth rate
for retail businesses operating in the same countries as the CGUs.
– Working capital movements are included in the model, building in anticipated movements due to the level of trading and including reductions across the Group
as part of the Delivering Value programme over the fi rst three years.
– The weighted average cost of capital, used to discount future cash fl ows, is calculated using a combination of the cost of debt and the cost of equity balanced
according to the Group’s level of fi nancial gearing. A risk adjustment is then made for the country in which the CGU operates.
United Kingdom
– The risk-adjusted discount rate of 11.3% (2008/09: 12.0%) is pre-tax and refl ects the specifi c risks inherent in the UK market. A decrease in cash fl ows of
33% would result in the value-in-use of goodwill being equal to its carrying amount. The Board do not consider that a reasonably possible change would
lead to the recoverable amount being below the carrying amount of goodwill based on this level of headroom.
France
– The risk-adjusted discount rate of 11.6% (2008/09: 13.4%) is pre-tax and refl ects the specifi c risks inherent in the French market. A decrease in cash fl ows
of 55% would result in the value-in-use of goodwill being equal to its carrying amount. The Board do not consider that a reasonably possible change would
lead to the recoverable amount being below the carrying amount of goodwill based on this level of headroom.
Poland
– The risk-adjusted discount rate of 13.2% (2008/09: 13.7%) is pre-tax and refl ects the specifi c risks inherent in the Polish market. A decrease in cash fl ows
of 78% would result in the value-in-use of goodwill being equal to its carrying amount. The Board do not consider that a reasonably possible change would
lead to the recoverable amount being below the carrying amount of goodwill based on this level of headroom.
China
– In the prior year, the goodwill relating to the China business was fully impaired. This arose due to a weak housing market following a rapid property market
slowdown, the dependence of the business on new apartment fi t outs and increasing local competition.