|Balance at 1 April 2011||29,728||2,152||31,880|
|Effect of movements in foreign exchange||78||4||82|
|Balance at 31 March 2012||30,538||2,973||33,511|
|Balance at 31 March 2012|
Fair Value Adjustment
|Effect of movements in foreign exchange||928||55||983|
|Balance at 31 March 2013||31,562||3,028||34,590|
|Amortisation and impairment|
|Balance at 1 April 2011||13,863||1,477||15,340|
|Amortisation for the year||–||281||281|
|Effect of movements in foreign exchange||21||–||21|
|Balance at 31 March 2012||13,884||1,758||15,642|
|Balance at 1 April 2012||13,884||1,758||15,642|
|Amortisation for the year||–||331||331|
|Effect of movements in foreign exchange||246||5||251|
|Balance at 31 March 2013||14,130||2,094||16,224|
|Net book value|
|At 1 April 2011||15,865||675||16,540|
|At 31 March 2012||16,654||1,215||17,869|
|At 31 March 2013||17,432||934||18,366|
Other intangible assets are made up of customer relationships acquired as part of the acquisitions of Serco Ryan Ltd and PowerSteel and Electro-Plating Works SDN Bhd (PSEP). The remaining amortisation period left on these assets is 0.5 and 10.75 years respectively.
The 2013 Fair Value adjustment relates to a PSEP deferred tax liability recognised upon revaluation of buildings performed prior to the acquisition in December 2011.
There were £nil impairments made during 2013 (2012: £nil).
The following cash generating units have significant carrying amounts of goodwill:
|Special Fasteners Engineering Co. Ltd (Taiwan)||10,050||9,423|
|TR Fastenings AB (Sweden)||1,063||1,063|
|Lancaster Fastener Company Ltd (UK)||1,245||1,245|
|Serco Ryan Ltd (within TR Fastenings Ltd) (UK)||4,083||4,083|
|PowerSteel and Electro-Plating Works SDN BHD (PSEP) (Malaysia)||887||736|
The Group tests goodwill annually for impairment. The recoverable amount of cash generating units is determined from value in use calculations.
Value in use was determined by discounting the future cashflows generated from the continuing use of the unit. In this method, the free cashflows after funding internal needs of the subject company are forecast for a finite period of five years based on actual operating results, budgets and economic market research. Beyond the finite period, a terminal (residual) value is estimated using an assumed stable cashflow figure.
The values assigned to the key assumptions represent management's assessment of future trends in the fastenings market and are based on both external and internal sources of historical data.
The table below highlights the key assumptions:
|Pre-tax discount rate||17%||16%||16%||16%||16%||16%|
|Long-term growth rate||4%||4%||3%||3%||2%||2%|
Long-term growth rate
Five year management plans are used for the Group's value in use calculations. Long-term growth rate into perpetuity has been determined as the lower of:
- the nominal GDP rates for the country of operation; and
- the long term compound annual growth rate in EBITDA in years six to ten estimated by management.
Pre-tax risk adjusted discount rate
The discount rate applied to the cash flows of each of the Group's operations is based on the risk free rate for ten year bonds issued by the government in the respective market, adjusted for a risk premium to reflect both the increased risk of investing in equities and the systematic risk of the specific Group operating company.
In making this adjustment, inputs required are the equity market risk premium (that is the increased return required over and above a risk free rate by an investor who is investing in the market as a whole) and the risk adjustment, beta, applied to reflect the risk of the specific Group operating company relative to the market as a whole.
In determining the risk adjusted discount rate, management has applied an adjustment for the systematic risk to each of the Group's operations determined using an average of the betas of comparable listed fastener distribution and manufacturing companies and, where available and appropriate, across a specific territory. Management has used a forward-looking equity market risk premium that takes into consideration both studies by independent economists, the average equity market risk premium over the past ten years and the market risk premiums typically used by investment banks in evaluating acquisition proposals.
The table above discloses pre tax discount rates across the three CGU's. This takes into account certain components such as various discount rates reflecting different risk premiums and tax rates in the respective regions. Overall, the Board is confident the pre-tax adjusted discount rates adequately reflect the circumstances in each region and are in accordance with IAS36.
Sensitivity to changes in assumptions
Other than as disclosed below, management believes that no reasonably possible change in any of the above key assumptions would cause the carrying value of any cash generating unit to exceed its recoverable amount.
The estimated values in use at 31 March 2013 of the Group's operations in Taiwan and Sweden were £2.22 million and £1.45 million above their respective carrying value and, consequently, any material adverse change in key assumptions would, in isolation, cause an impairment loss to be recognised.
The table below shows what the variables used in the 'value in use' calculations for Taiwan and Sweden need to change to (in isolation) in order for the estimated recoverable amount to be equal to its carrying value.
|Pre-tax adjusted discount rate||19.0%||23.0%|
|Budgeted change in EBIT||13.4%||29.9%|
|Long-term growth rate||1.8%||<0%|
Other subsidiaries are not included in the calculation as their individual cash generating units show a significant headroom over the goodwill carrying value.
The £0.63 million increase in the goodwill of SFE refers to a foreign exchange gain, as the investment is held in Singapore Dollars within TR Asia Investment Holdings Pte Ltd.
The £0.15 million increase in the goodwill of PSEP comprises £0.10 million in respect of the restatement of the pre-acquisition reserves and £0.05 million refers to a foreign exchange gain, as the investment is held in Singapore Dollars within TR Asia Investment Holdings Pte Ltd.