Dagang NeXchange Berhad Annual Report 2018

4. GOODWILL (CONTINUED) (b) An impairment loss of RM3,600,000 was recognised on OGPC Group in “other operating expenses” line item of the statement of profit or loss and other comprehensive income after determining the recoverable amount of the cash-generating unit. The Group has assessed the recoverable amounts of goodwill allocated and determined that no additional impairment is required. The recoverable amounts of the cash-generating units are determined using the value in use approach, and this is derived from the present value of the future cash flows from each cash-generating unit computed based on the projections of financial budgets approved by management covering a period of 5 years. The key assumptions used in the determination of the recoverable amounts are as follows: Average Gross Margin Average Growth Rate Discount Rate Terminal Growth Rate 2018 2017 2018 2017 2018 2017 2018 2017 OGPC Group 33.00% 33.00% 5.00% 5.68% 8.29% 16.97% 0% 0% Genaxis Group 28.00% n/a 5.00% n/a 14.74% n/a 0% n/a The key assumptions represent management’s assessment based on past operating results and management’s expectations of market conditions and assessment of future trends derived from both external and internal sources. Management has determined the average gross profit margin and weighted average growth rate based on past performance and its expectation of market development. The discount rate used are computed based on the weighted average cost of capital of the industries that the Group operates in. (c) Sensitivity to changes in assumptions The management believes that no reasonably possible changes in any of the above key assumptions would cause the carrying value of the goodwill to be materially higher than its recoverable amount other than as disclosed below: Following an impairment in the OGPC Group cash-generating unit, the above estimate is particularly sensitive in the following area: • An increase in 1.3 percentage point in the pre-tax discount rate used would have resulted in an impairment loss of approximately RM2,870,000. 129 Annual Report 2018 Notes to the Financial Statements (CONTINUED) FINANCIAL STATEMENTS