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AFRICAN DAWN Annual Report 2016

continued Notes to the Financial Statements Annual Financial Statements For the year ended 29 February 2016 4. Goodwill (continued) Goodwill impairment Impairment test for goodwill During 2015, goodwill of R8,076 million arose on the acquisition of the Knife Capital Group (refer to note 32) and has been allocated to the cash-generating units (CGUs) as follows: 2016 R’000 Opening Additions Disposals Impairment Closing Knife Capital 7,133 - - - 7,133 Grindstone 943 - - - 943 8,076 - - - 8,076 2015 R’000 Opening Additions Disposals Impairment Closing Knife Capital - 7,133 - - 7,133 Grindstone - 943 - - 943 - 8,076 - - 8,076 The recoverable amount of the CGUs has been determined based on value-in-use calculations. These calculations use pre- tax cash flow projections based on financial budgets approved by management covering a six-year period in line with the carried interest cycle. Cash flows beyond the six-year period are extrapolated using the estimated growth rates stated below: The growth rate does not exceed the long-term average growth rate for the business in which the CGU operates. The key assumptions, long term growth rates and discount rates used in the value-in-use calculations are as follows: Assumptions Note Knife Capital Grindstone Compounded annual revenue increase % 1 17% 20% Compounded annual total operating costs increase % 2 10% 4% Pre-taxation discount rate 26% 24% Recoverable amount of the CGU (R'000) 10,964 3,693 Notes These assumptions have been used for the analysis of each CGU within the Knife Capital Group: 1. Revenue increase is based on past performance and management’s expectations of growth. 2. Operating costs are the fixed costs of the CGUs, which do not vary significantly with sales volumes or prices. Management forecasts these costs based on the current structure of the business, adjusting for inflationary increases and these do not reflect any future restructurings or cost saving measures. No impairment was necessary. AFRICAN DAWN ANNUAL REPORT 2016 63


AFRICAN DAWN Annual Report 2016
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