RE: MW20 Dec 2019 22:06
Thunder
Note 19 to the 2018 statutory accounts on Goodwill says the future cashflows are discounted at a weighted average cost of capital c8-10% which is a good average across industries imo. Prudent growth estimates used which taken together means NMC don't require goodwill to be impaired. If growth fell away then goodwill would be impaired, I think.
'Goodwill Additions to goodwill in the year relate to goodwill measured in respect of the acquisitions of CosmeSurge, Boston IVF, Aesthetics, Al Salam, Al Rashid, CCSMC, EMC, Pro-Criar, FMC, Royal RAK, CREA, Sweden IVF, Premier, AVA, Mesk and Cytomed.
Goodwill is not amortised, but is reviewed annually for assessment of impairment in accordance with IAS 36. The Group performed its annual goodwill impairment test in December 2018 and 2017. Goodwill acquired through business combinations is allocated to the following operating segments representing a group of cash generating units (CGUs), which are also operating and reportable segments, for impairment testing: • Healthcare • Distribution and services
The healthcare CGU has goodwill allocated to it of US$ 1,416,246,000 at the year-end (2017: US$1,052,886,000). The distribution and services CGU has goodwill allocated to it of US$ 24,045,000 at the year-end (2017: US$4,879,000).
The recoverable amounts for both CGUs are based on value in use, which has been calculated using cash flow projections from financial budgets approved by senior management covering a five-year period. Cash flows from the sixth to tenth year period are extrapolated using a 3% growth rate (2017: 3%) which is significantly lower than the current annual growth rate of both CGUs. 0% growth rate is applied for cash flows beyond tenth year. The pre-tax discount rate applied to the to the cash flows of both CGUs is 9.71% (2017: 8.23%), which is based on the Group’s weighted average cost of capital (WACC) and takes into account such measures as risk free rates of return, the Group’s debt/equity ratio, cost of debt and local risk premiums specific to the CGUs. As a result of the analysis, there is headroom in both CGUs and no impairment has been identified. Reasonable sensitivities have been applied to each CGU’s cash flows and the discount rates used, and in all cases the value in use continues to exceed the carrying amount of CGU goodwill.
The key assumptions on which management has based its cash flow projections for the six year period covered by the most recent forecasts are those related to growth in available beds, patient numbers for the healthcare segment and revenue from the distribution of products for the distribution and services segment. The assumptions made reflect past experience and are based on management’s best estimate and judgment
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