Dechra Pharmaceuticals PLC

Dechra Pharmaceuticals PLC

Annual Report and Accounts for the year ended 30 June 2012

13. Impairment Reviews

Goodwill, indefinite life assets and intangible assets not yet available for use are tested for impairment annually, or more frequently if there are indications that amounts might be impaired. The impairment test involves determining the recoverable amount of the relevant asset or cash-generating unit, which corresponds to the higher of the fair value less costs to sell or its value in use.

Value in use calculations are performed by forecasting the future cash flows attributable to the asset being tested (or the relevant cash-generating unit in respect of goodwill). The forecast cash flows are discounted at an appropriate rate as described below.

Projected future cash flows have been derived from the business plan and extrapolated by applying a growth rate of 5% (2011: 5%) per annum up to year five and thereafter a growth rate of 0% (2011: 0%) per annum into perpetuity which is considered to be consistent with the long term average growth rate for the industry.

The business plan has been formulated based on various factors, including market growth forecasts, the experience of the impact of previous recessions and existing product growth. These factors reflect past experience of the Group and, where applicable, are consistent with external sources of information.

The pre-tax discount rates have been estimated using the Group's weighted average cost of capital, which is adjusted for consideration of market information, and risk adjusted dependent upon the specific circumstances of each asset or cash-generating unit.

Value in use calculations were performed at 30 June 2012 for the following assets:

(a) Goodwill

Cash-generating unit20122011
Carrying
value
£'000
Pre-tax
discount
rate
%
Carrying
value
£'000
Pre-tax
discount
rate
%
Dechra Veterinary Products EU52,7498.9019,0859.87
Dechra Veterinary Products US3209.5231210.65
Laboratories2,6219.872,62110.83
Dales2,2318.702,2319.62

(b) Indefinite Life Assets

Asset20122011
Carrying
value
£'000
Pre-tax
discount
rate
%
Carrying
value
£'000
Pre-tax
discount
rate
%
Vetivex licences8228.908229.87

In all cases there was significant headroom between the carrying value and the value in use and no impairment provision is therefore required. An increase in the pre-tax discount rate of 1% and a reduction in the growth rate to nil would still not result in the requirement for an impairment provision.

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