Wah Seong Corporation Berhad Annual Report 2018

13 GOODWILL AND OTHER INTANGIBLE ASSETS (CONTINUED) Impairment testing of goodwill Goodwill arising from business combination has been allocated to the Group’s cash-generating units (“CGU”) identified according to operating divisions. The carrying amounts of goodwill allocated to the respective CGUs are as follows: Group 2018 2017 RM’000 RM’000 Cash-generating units Specialised Pipe Coating and Corrosion Protection Services (CGU A) 78,199 77,157 EPC, Fabrication and Rental of Gas Compressors and Process Equipment (CGU B) 66,992 66,035 145,191 143,192 The recoverable amount of the CGU is determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a period of 5 years (2017: 5 years) based on past performance and their expectations of the market development. Terminal value is estimated at the end of the 5-year period. Value-in-use was determined by discounting the future cash flows generated from the CGUs based on the following key assumptions on the premise that there will be no material changes in the Group’s principal activities. 2018 2017 Revenue Pre-tax Revenue Pre-tax growth discount growth discount rate rate rate rate CGU A <0%* – 13.5% 21.7% <0%* – 5.0% 19.4% CGU B <0%* – 7.0% 21.1% 4.8% 20.5% * Negative growth is due to end of ongoing project. The key assumptions used in calculating the value-in-use are described below: (i) Terminal growth rate Terminal growth rates of 2.0% and 1.5% are for CGU A and CGU B respectively (2017: 2.0% for CGU A and 1.5% for CGU B) were used to determine the terminal values beyond the 5-year period cash flows. (ii) Discount rate The discount rates used reflect the weighted average cost of capital adjusted for specific risks associated with the CGUs of the Group with a premium representing the business risk of the respective CGUs. Sensitivity The recoverable amount of CGU A and CGU B is estimated to exceed the carrying amount at 31 December 2018 and 31 December 2017. The recoverable amount of CGU A would equal its carrying amount if the key assumptions were to change as disclosed below. 2018 2017 From To From To CGU A Revenue growth rate for 5 years 13.5% 12.8% 5.0% (7.0%) Pre-tax discount rate 21.7% 22.0% 19.4% 21.5% Growth rate for terminal value 2.0% 1.6% 2.0% (1.7%) The recoverable amount of CGU B is not sensitive to the changes in the key assumptions. NOTES TO THE FINANCIAL STATEMENTS FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2018 WAH SEONG CORPORATION BERHAD 140