For the year ended 31 December 2015
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS continued
11 Goodwill and other intangible assets continued (c) Impairment testing continued Significant judgements, assumptions and estimates
One CGU within the Group, Power Management Devices (GKN Land Systems), has continued to be assessed for impairment using an estimation of fair value less costs of disposal based on a multiple of EBITDA and recent comparable market prices. Due to market conditions in the year and the short term nature of its order book, value in use was not considered to be a representative assessment for impairment testing. The relevant assets of Power Management Devices have been assessed against fair value less costs of disposal. The assessment used an assumed EBITDA taking into account past performance, and a market based multiple following a review of comparable companies within a peer group. Sensitivity analysis on this CGU is provided below. All other CGUs’ recoverable amounts were measured using value in use. Detailed forecasts for the next five years have been used which are based on approved annual budgets and strategic projections representing the best estimate of future performance. In the case of CGUs within the Group’s GKN Aerospace business, value in use was measured using operating cash flow projections covering the next ten years which incorporate the anticipated timing of volumes on current programmes. Management consider forecasting over this period to more appropriately reflect the length of business cycle of those CGU’s programmes. During the year there has been one change in the composition of the Group’s CGUs; splitting a CGU in GKN Aerospace North America into two separate CGUs based on changes to the business including management team, market approach and contracts, effective from 1 January 2015. One of these two CGUs, Astech, subsequently lost a key contract in the fourth quarter and as a consequence was impaired (see page 133). In determining the value in use of CGUs it is necessary to make a series of assumptions to estimate the present value of future cash flows. In each case, these key assumptions have been made by management reflecting past experience and are consistent with relevant external sources of information.
Operating cash flows
The main assumptions within forecast operating cash flow include the achievement of future sales prices and volumes (including reference to specific customer relationships, product lines and the use of industry relevant external forecasts of global vehicle production within Automotive businesses and consideration of specific volumes on certain military and commercial programmes within Aerospace), raw material input costs, the cost structure of each CGU and the ability to realise benefits from annual productivity improvements, the impact of foreign currency rates upon selling price and cost relationships and the levels of maintaining capital expenditure required to support forecast production.
Pre-tax risk adjusted discount rates