Page 110 - ar2012

NOTES TO THE FINANCIAL STATEMENTS (cont’d)
For the year ended 31 December 2012
17. Intangible assets (cont’d)
The recoverable amount of the CGUs have been determined based on value-in-use calculations using cash flow projections from
financial budgets approved by management covering a five year period. The pre-tax discount rate applied to the cash flow projections
and the forecasted growth rate used to extrapolate cash flow projections beyond the five-year period are as follows:
FER (HK) Limited
Group
FES Industries
Pte Ltd Brand
2012 2011 2012 2011 2012 2011
Growth rates 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Pre-tax discount rates 12.0% 9.8% 7.7% 7.9% 12.0% 9.8%
The calculations of value-in-use for the CGU’s are most sensitive to the following assumptions:
Forecasted sales values – For the first 5 years of forecasted growth, sales values are based on actual values achieved in the years
preceding the start of the budget period. These are adjusted over the budget period of the next 5 years resulting from increased
advertising and promotional effects. An average of 10.0% for brand and 6.0% for goodwill per annum were applied.
Growth rates – The forecasted growth rates beyond the 5-year period are based on published industry research and do not exceed
the long-term average growth rate for the mature industry that the CGU is in.
Pre-tax discount rates – Discount rates represent the current market assessment of the risks specific to each CGU, regarding the
time value of money and individual risks of the underlying assets which have not been incorporated in the cash flow estimates.
The discount rate calculation is based on the specific circumstances of the Group and its operating segments and derived from its
weighted average cost of capital (WACC). The WACC takes into account both debt and equity. The cost of equity is derived from the
expected return on investment by the Group’s investors. The cost of debt is based on the interest bearing borrowings the Group is
obliged to service. Segment-specific risk is incorporated by applying individual beta factors. The beta factors are evaluated annually
based on publicly available market data.
108