Key assumptions used in value-in-use calculations
The calculation of value-in-use for each of the Estate Agency and Related Services and Surveying and Valuation Services companies is most sensitive
to the following assumptions:
• Discount rates
• Market share and market recovery
• Growth rate used in the budget period
Discount rates reflect management’s estimate of the post-tax Weighted Average Cost of Capital (WACC) of the Group and this is grossed up to arrive
at a pre-tax discount rate (using a tax rate of 23%) of 11.3%. This is the benchmark used by management to assess operating performance and to
evaluate future acquisition proposals.
Market share and market recovery assumptions are important because, as well as using industry data for growth rates (as noted below) management
assess how the Company’s relative position to its competitors might change over the budget period. Management expects the Group’s share of the
surveying market to remain at similar levels over the budget period. There has been growth in the market share of the Estate Agency companies
organically (due to various market share growth initiatives). For impairment test purposes, management have not considered any further market
share growth beyond 2012.
Growth rate estimates are conservatively estimated at nil (2011: nil) after the end of the three year plan. Given the housing and mortgage markets
are currently considered to be at a very low point in the cycle, with transaction volumes at approximately half the long term average, this estimate is
considered very conservative.
There has been no impairment in respect of the carrying amount of goodwill or brand (an indefinite useful life asset) held on the balance sheet.
Sensitivity to changes in assumptions
With regard to the assessment of value-in-use for each of the above companies, Directors believe that no reasonably possible change in any of the
above key assumptions would cause the recoverable amount to be below the carrying value. Despite the unprecedented market conditions, the
principal Estate Agency and Related Services companies, Your Move and Reeds Rains have been profitable in 2012.
Financial Statements
85