NWG Annual Report 2019 - EN NWG Annual Report 2019 - EN | Page 85

NWG // FINANCIAL INFORMATION //
THE GROUP
Valuation
The Group's intangible fixed assets with
indefinite useful life consist of goodwill and
trademarks. The useful lives are assessed
to be indefinite because they are well
established strategic trademarks in
respective markets which the Group
intends to maintain and develop further.
The trademarks with greater value,
recorded at their acquisition values, are
well-known trademarks, such as Orrefors
and Kosta Boda within Gifts & Home
Furnishing as well as mainly Cutter &
Buck within Sports & Leisure.
The value of the Group's goodwill and
trademarks, which are based on local
currency and can give rise to currency
translation effects in the consolidated
financial statements, have been allocated
between the cash-generating units they
are considered to belong to. These units
are also the Group´s segments. The value
of these intangible assets is reviewed
annually to ensure that the value does not
deviate negatively from book value, but
can be tested more frequently if there are
indications that the value has decreased.
In order to assess whether there are indi-
cations of impairment, the recoverable
amount needs to be determined by a calcu-
lation of the respective cash-generating
unit's value in use. The value in use is based
on established cash flow projections for
the next five years, and a long-term term
growth rate, so-called terminal growth.
The most important assumptions in deter-
mining the value in use include growth
rate, operating margin and discount rate
(WACC). When calculating the discount
rate, an assessment of financial factors
such as interest rate levels, borrowing
costs, market risk, beta values and tax
rates will be carried out. As the cash-gene-
rating units have different characteristics,
each unit is assessed after its commercial
factors. The estimated cost of capital
(WACC) is considered to be representative
of all cash-generating units.
The cash flow forecats that are basis
for the impairment test are based on the
five year forecast adopted by the Board
(2020-2024) and thereafter a terminal
growth of 3.0 (3.0) %.
In calculating the present value of
expected future cash flows, a weighted
average cost of capital (WACC) of 10.2
(10.2) % before tax is used.
Based on the tests and analyzes that
have been carried out, there is currently
no need for impairment in the Corporate
and Sports & Leisure segments. Within
the segment Gifts & Home Furnishings
goodwill has been impaired with SEK
-11.4 million. In the comparison period
no indicators of need for impairment were
identified. Sensitivity analyses have been
performed for all cash-generating units.
Corporate
Sales occur in all regions. The assump-
tions made are that growth will occur on
existing markets through an increased
market share and also through establish-
ments 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 1 (3) percentage
point annually, the operating margin
decreases by 2 (1) percentage points or if
the WACC increases by 2 (2) percentage
points.
Sports & Leisure
The operating segment's sales mainly
occur in the retail sales channel. All regions
have sales of the segment's products. 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 be on
the same level during the forecast period
(2020-2024).
A sensitivity analysis shows that the
value can be maintained even if the growth
rate decreases annually by 1 (1) percentage
point, the operating margin decreases
by 1 (1) percentage point or if the WACC
increases by 1 (1) 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. The turnover in
inventory is expected to increase during
the forecast period (2020-2024).
A sensitivity analysis shows that
the value can be maintained even if the
annual growth rate decreases by half a (1)
percentage point, the operating margin
decreases by 1 (1) percentage point or if
the WACC increases by 1 (1) percentage
point.
ANNUAL REPORT // 085