New Wave Group AB Annual_report_2018_EN_HQ | Page 85

NWG // FINANCIAL INFORMATION //
THE GROUP
Valuation
The Group's intangible fixed assets
with indefinite useful lifetime consist
of goodwill and trademarks, where the
useful lifetime for the trademarks is
considered indefinite due to the fact that
they are considered strategic trademarks
on each market and the Group's aim is to
retain them for further development. The
trademarks with a higher value recorded
at cost are well known trademarks, such
as Orrefors and Kosta Boda in Gifts &
Home Furnishing and primarily Cutter
& Buck in Sports & Leisure.
The value of the Group's goodwill
and trademarks, which are based on
local currency and may give rise to tran-
slation differences in the consolidated
financial statements, has been divided
between the cash generating units they
are considered to belong to, which also
constitue the operating segments as
shown in the above tables. The value
of these intangible assets is tested for
impairment annually but may be tested
more frequently if there are indications
of impairment. In order to assess any
possible impairment, the recoverable
amount needs to be calculated which is
done by calculating each cash generating
units value in use. The value in use is
based on cash flow forecasts for the next
five years and a long term term growth
rate, so called terminal growth. The most
significant assumptions when deter-
mining the value in use consist of growth
rate, operating margin and discount rate
(WACC). When calculating the discount
rate estimations of financial factors such
as interest rate levels, borrowing costs,
market risk, beta values and tax rates are
made. Since the cash generating units
have different characteristics, each unit
is assessed based on its market condi-
tions. The calculated cost of capital
(WACC) is considered representative for
all of the cash generating units.
The cash flow forecasts in the
impairment test are based on the Board's
approved five year forecasts (2019-2023)
and a terminal growth of 3 (3) %.
When discounting estimated future
cash flows a pre tax weighted average cost
of capital (WACC) of 10.2 (10.3) has been
used.
The 2018 impairment test shows no
need for impairment. Nor where there
any need for impairment in the compa-
rison year. Sensitivity analyses have been
completed for all cash generating units.
Corporate
Sales mainly occur in the following
regions Sweden, the Nordic countries
(excl. Sweden), Europe and Asia. The
assumptions made are that growth will
occur on existing markets through an
increased market share and also through
establishments on new markets. The
operating margin and turnover rate in
inventory, is expected to be on current
level.
Sales mainly occurs in the promo
sales channel (97 %) which means that
a properly balanced inventory is an
important component for reaching a
good service level.
A sensitivity analysis shows that
the value can be maintained even if the
growth rate decreases by 3 (4) percentage
points, the operating margin decreases
by 1 (2) percentage point or if the WACC
increases by 2 (3) percentage points.
Sports & Leisure
The operating segment's sales mainly
occur in the retail sales channel and on
the American and Swedish markets. The
forecasts include a growth on existing
markets through an increased market
share. The sales growth is expected to
lead to an improved operating margin.
The turnover in inventory is expected to
increase some what during the forecast
period (2019-2023).
A sensitivity analysis shows that
the value can be maintained even if the
growth rate decreases by 1 (4) percentage
point, the operating margin decreases by
1 (2) percentage point or if the WACC
increases by 1 (2) percentage point.
Gifts & Home Furnishings
Most of the sales occur on the Swedish
market and in the retail sales channel.
The assumptions made is that sales
are expected to increase on existing
markets and that the operating margin
will continue to improve. Capital tied-up
in inventory is expected to increase in
relation to sales.
A sensitivity analysis shows that
the value can be maintained even if the
growth rate decreases by 1 (2) percentage
point, the operating margin decreases by
1 (1) percentage point or if the WACC
increases by 1 (1) percentage point.
ANNUAL REPORT // 085