Adcock Ingram Integrated Report 2018

ANNUAL FINANCIAL STATEMENTS Notes to the Group annual financial statements continued 86 ADCOCK INGRAM  Integrated Report 2018 11 INTANGIBLE ASSETS (continued) IMPAIRMENT TESTING OF INTANGIBLE ASSETS The average remaining useful life for intangible assets with finite useful lives ranges between 1 to 8 years. The recoverable amount of the goodwill and indefinite life intangible assets has been determined based on a value-in-use calculation using cash flow projections from financial budgets approved by senior management covering a 10-year period when management believes that products have a value-in-use of 10 years or more and that these projections, based on past experience, are reliable. The discount rate applied to cash flow projections, before adjusting for risk, is 12.25% (2017: 12.36%) for the intangible assets. The cash flows beyond the 10-year period are discounted using a 0.5% long term growth rate (2017: 0.5%). Key assumptions used in value-in-use calculations: The calculation of value-in-use for all segments is sensitive to the following assumptions: • gross margin; • discount rates; • raw materials price inflation; • market share during the budget period; and • growth rate used to extrapolate cash flows beyond the budget period. Gross margin Gross margins are based on average values of between 27% to 50% in the three years preceding the start of the budget period. These are changed over the budget period for anticipated efficiency improvements, estimated changes to cost of production and raw materials, and selling prices. Discount rates Discount rates reflect management’s estimate of the risks. This is the benchmark used by management to assess operating performance and to evaluate future investment proposals. In determining appropriate discount rates, regard has been given to the yield on a 10-year government bond at the beginning of the budgeted period. Rawmaterials price inflation Estimates are obtained from published indices for the countries from which materials are sourced, as well as data relating to specific commodities. Forecast figures are used if data is publicly available, otherwise past actual raw materials price movements of 5% have been used as an indicator of the future price movements. Market share assumptions These assumptions are important because, as well as using industry data for growth rates, management assesses how the Group’s position, relative to its competitors, might change over the budget period. Market share is considered separately for each asset to determine the impact on the future cash flows. Growth rate estimates The growth rate used beyond the next 10-year period is management’s best estimate taking market conditions into account.