IAS 36 para 134, certain goodwill impairment review disclosures, VIU basis

UDG Healthcare plc – Annual report – 30 September 2020

Industry: healthcare

13. Goodwill (extract)

Goodwill acquired through business combinations has been allocated to CGUs for the purpose of impairment testing. The CGUs represent the lowest level within the Group at which associated goodwill is monitored for management purposes and are not bigger than the segments determined in accordance with IFRS 8 Operating Segments. Significant under-performance in any of the Group’s major CGUs may give rise to a material write-down of goodwill which would have a substantial impact on the Group’s income and equity. Following a reorganisation of reporting and management structures in Ashfield Commercial & Clinical, there are a total of seven (2019: eight) CGUs identified. The carrying value of goodwill and the number of CGUs are analysed between the operating segments in the Group below.

In accordance with IAS 36 Impairment of Assets, the CGUs to which significant amounts of goodwill (greater than 10% of the total value) have been allocated are as follows:

1 Includes goodwill relating to Canale Communications which was acquired during the year (Note 29).

2 Ashfield Commercial & Clinical Europe Group is a new CGU arising during the year following a reorganisation of reporting and management structures in Ashfield.

All other units account for individually less than 10% of the total carrying value of goodwill and are not considered individually significant.

Impairment Testing of CGUs Containing Goodwill

The Group tests goodwill for impairment on an annual basis or more frequently if there is an indication that the goodwill may be impaired. This testing involves determining the CGU’s value in use and comparing this to the carrying amount of the CGU. Where the value in use exceeds the carrying value of the CGU, the asset is not impaired, but where the carrying amount exceeds the value in use, an impairment loss is recognised to reduce the carrying amount of the CGU to its value in use. Estimates of value in use are key judgemental estimates in the financial statements. A number of key assumptions have been made as a basis for the impairment tests. In each case, these key assumptions have been made by management reflecting past experience and are consistent with relevant external sources of information.

Value in Use Calculations

Where a value in use approach is used to assess the recoverable amount of the CGU, calculations use pre-tax cash flow projections based on financial budgets and projections covering a five-year period. The cash flow forecasts used for the value in use computations exclude incremental profits and other cash flows derived from planned acquisition activities. For individual CGUs, the cash flow forecasts employed in the computations are based on a four-year plan, which has been approved by senior management. The remaining year’s forecasts have been extrapolated using the estimated long-term growth rates.

A long-term growth rate reflecting the long-term economic growth rates for the countries of operation of the CGUs have been applied to the year five cash flows. The long-term growth rates applied to value in use calculations range from 1.9% to 2.2% (2019: 2.0% to 2.2%). The value in use of each CGU is calculated using a discount rate representing the Group’s estimated weighted average cost of capital, adjusted to reflect risks associated with each CGU including country specific risks. The pre-tax discount rates range from 9.1% to 9.7% (2019: 9.4% to 10.3%). The pre-tax discount rates and long-term growth rates used for significant CGUs are detailed in the table below.

Following the introduction of IFRS 16 Leases in the year commencing 1 October 2019, the lease right-of-use assets are included in the carrying amount of the CGUs for impairment testing. The cost of leasing is included in the determination of the discount rates based on a weighted average cost of capital specific to each CGU. As the cost of leasing is lower than the cost of equity, this results in lower discount rates compared to the prior year. The implementation of IFRS 16 Leases does not impact on the result of the goodwill impairment test.

The key assumptions used for the value in use computations are that the markets will grow in accordance with publicly available data, the Group will maintain its current market share, gross margins will be maintained at current levels and overheads will increase in line with expected levels of inflation. The cash flow forecasts assume appropriate levels of capital expenditure and investment in working capital to support the growth in individual CGUs.


There was no impairment charge arising from the Group’s annual goodwill impairment test.

Additional Sensitivity Analysis

The Group has conducted a sensitivity analysis on each of the CGUs by applying the following scenarios:

  • Decreasing revenue growth forecasts by 3%;
  • Decreasing operating profit margins by 1.5%;
  • Increasing discount rates by 1%; and
  • Reducing long-term growth rates by 1%.

The Group has also performed a sensitivity analysis on the Group’s CGUs assuming the Covid-19 pandemic and the restrictions imposed as a result continues until 30 September 2021 with normal growth assumed thereafter. A reasonably possible change in any of the key assumptions would not cause the carrying amount to exceed the recoverable amount in any of the significant CGUs.