omnia holdings annual report 2010 omnia holdings annu

92 OMNIA ANNUAL REPORT 2010 FINANCIAL STATEMENTS continued
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
for the year ended 31 March 2010
3 INTANGIBLE ASSETS continued
A segment-level summary of the goodwill allocation is presented below:
Cash-generating units
Chemicals segment
Protea Speciality Chemicals 42 51
Protea Polymers and African Polymers 40 41
Protea Chemicals – Inland 54 54
Protea Chemicals – Cape 101 112
Protea Chemicals – KZN 20 22
Zetachem 36 42
Petroleum Fine Products 37 –
Fertilizer segment
330 322
Omnia Specialities Australia 2 3
332 325
Goodwill represents the above cash-generating units’ ability to generate future cash flows, which is a direct result of various
factors, including the quality of the workforce acquired, possible future synergies and customer and supplier relationships.
The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use pre-tax cash flow
projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year
period are extrapolated based on the estimated growth rates stated below. The growth rate does not exceed the long-term
average growth rate for the chemicals business in which the CGU operates.
Management believes that any reasonable possible change in the key assumptions on which the above CGU’s carrying amounts
are based would not cause the carrying amount of any of the CGUs to exceed their recoverable amount.
Key assumptions used for value-in-use calculations:
Annual revenue growth 16 6
Annual growth in other income 16 8
Gross margin % (1) 14 14
Annual increase in expenses 13 15
Annual increase in fixed costs 7 15
Discount rate (2) 1) Budgeted gross margin
2) Pre-tax discount rate applied to the cash flow projections
9 12
These assumptions have been used for analysis of each CGU within the business segment. Management determined budgeted
gross margin based on past performance and its expectations of the market development. The annual growth rates are determined
based on the budget for the forthcoming financial year. The discount rates used are pre-tax and reflect specific risks relating to the
relevant CGUs.
No impairment charge to goodwill was required based on the above value-in-use calculations.
Effect of variances in assumptions used
The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in
note 1.7.1. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These
calculations require the use of estimates (refer note 1.1 and note 1.3).
If the revised estimated gross margin at 31 March 2010 reduced from 14% to 12%, there would be no impairment of goodwill.
If the revised estimated sales growth per annum had been 14% rather than management’s estimate at 31 March 2010 of 16%,
there would be no impairment of goodwill.
If the revised estimated pre-tax discount rate applied to the discounted cash flows increased from 9% to 12%, there would be no
impairment of goodwill.
2010
Rm
2010
%
2009
Rm
2009
%