Page 101 - Restamax Plc Annual Report 2017

Impairment testing

Impairment testing takes a group of units and other intangible assets with unlimited useful life that contains goodwill
and generates cash flow and compares its book value to its recoverable amount. The judgement and future estimates
of the company’s management are central to the drafting of the impairment calculations. If the recoverable amount
is lower than the book value entered on the balance sheet, the difference is recorded as an impairment loss decreasing
income. The recoverable amount is the fair value of the group of cash-flow generating units deducted by the costs to
sell, or the utility value, whichever is higher. For the impairment testing, the recoverable amount used has been the
value in use calculated by means of the discounted cash flow (DCF) method.

Goodwill and non-competition agreements with unlimited durations are allocated as follows within the Group:

31/12/2017 31/12/2016
Restaurants Labour hire Restaurants Labour hire
Goodwill 34,618.7 17,927.9 31,677.5 6,214.1
Non-competition 422.1 - 426.5 -
agreements

Impairment tests are performed for goodwill and non-competition agreements each year and whenever an external
or internal factor can be expected to cause changes that may potentially lead to impairment. Impairment tests were
performed on 31 December 2017 and 31 December 2016, using the then-current book values and calculations of future
cash flows.

The impairment calculations are based on cash flow predictions in the budget drafted by the Group’s Executive Team
and approved by its Board of Directors, added by the forecast and terminal period. The length of the forecast period
used for the impairment calculations is 4 years.

Drawing up calculations using the DCF model requires forecasts and assumptions, the most significant of which involve
turnover growth, cost development, level of maintenance investments and changes in the discount rate. It is possible
that the assumptions related to the cash flow forecasts are not realised, and the resulting impairments of goodwill or
non-competition agreements may have a materially adverse effect on the income derived from the company’s opera-
tions and on its financial position during the present review period and future review periods.
The forecast cash flows are based on the capacity of the group of cash-flow generating units that the Group owned on
the testing date. In other words, expansion investments have not been taken into account in the cash flow estimates.
The Group’s cash-flow generating units or groups thereof mainly engage in the restaurant business and the labour hire
business. The expansion of operating activities into new areas inside Finland is capacity expansion, and the investing
activities related to it or gains derived from it have not been included in the calculations.

The company has two groups of cash-flow generating units, which are used to monitor goodwill, and, therefore, all
goodwill and non-competition agreements with unlimited durations are allocated to this group. According to the
company’s strategy, its restaurant network forms a unified group of cash-flow generating units due to their central-
ised management, service marketing, service production methods, significant centralised purchases and other group
services. Correspondingly, the labour hire operations acquired late in the summer of 2014 form a single group of
cash-flow generating units.

The impairment tests on 31 December 2017 and 31 December 2016 did not indicate a need for impairment of goodwill or
non-competition agreements.

CONSOLIDATED FINANCIAL STATEMENTS 101