RWS AR 23 Final Single pages - Flipbook - Page 119
Estimates and assumptions
The key assumptions and estimates concerning the
future and other key sources of estimation uncertainty
at the reporting date, that have signi昀椀cant risk of
causing a material adjustment to the carrying amount of
the assets and liabilities within the next 昀椀nancial year are
discussed below:
Acquisition accounting
Judgement is often required in determining the
identi昀椀able intangible assets acquired as part of a
business combination that must be recognised in the
Group's consolidated 昀椀nancial statements. Estimation
is required in determining both the fair value of all
identi昀椀ed assets, liabilities acquired, any contingent
consideration and in particular intangible assets. In
determining these fair values, a range of assumptions
are used, including forecast revenue, discount rates,
and attrition rates that are speci昀椀cally related to the
intangible asset being valued. The useful economic lives
of these assets is being estimated using Management's
best estimates and reassessed annually.
Other estimates and assumptions
The consolidated 昀椀nancial statements include other
estimates and assumptions. Whilst Management do not
consider these to be signi昀椀cant accounting estimates,
the recognition and measurement of certain material
assets and liabilities are based on assumptions which,
if changed, could result in adjustments to the carrying
amounts of and liabilities.
Revenue - rendering of services
Management makes estimates of the total costs that will
be incurred on a contract by contract basis. Management
reviews the estimate of total costs on each contract on
an ongoing basis to ensure that the revenue recognised
accurately re昀氀ects the proportion of the work done at
the balance sheet date. All contracts are of a short-term
nature. The majority of services work is invoiced on
completion and the amount of year end work in progress
was £52.7m (2022: £51.2m). The e昀昀ect of changing the
estimated total cost of each contract could, in aggregate,
have an e昀昀ect on the carrying amount of accrued income
at the balance sheet date.
Impairment of goodwill and intangible assets
An impairment test of goodwill (performed annually) and
other intangible assets (when an indicator of impairment
exists), requires estimation of the value in use of the cash
generating units ('CGUs') to which goodwill and other
intangible assets have been allocated. The value-in-use
calculation requires the Group to estimate the future
cash 昀氀ows expected to arise from the CGUs, for which
the Group considers revenue growth rates and EBITDA
margin to be a signi昀椀cant estimates. The estimated
future cash 昀氀ows derived are discounted to their present
value using a pre-tax discount rate that re昀氀ects estimates
of market risk premium, asset betas, the time value of
money and the risks speci昀椀c to the CGU. During the
period an impairment of £62.4m has been recognised in
respect of the Language and Content Technology CGU.
See Note 12 and 13 for further details.
Additionally, the Group has considered other reasonable
possible changes to the assumptions underlying the
CGU valuations that would need to occur and which
would cause an impairment as follows:
Regulated Industries - EBITDA margin: By using the
actual FY23 EBITDA margin (17.0%) across the projection
period while keeping all other factors consistent with the
base model, we have noted an impairment of £3.1m at
the lower end range of the WACC which is a reasonable
possible change. Headroom would be eliminated at an
EBITDA margin of 17.2%. The value-in-use headroom of
£65.3m exceeded the carrying asset amount by 30%.
Language Services - Discount factor (WACC): There is
evidence of reasonable possible change at the higher
end of the WACC sensitivity (+200bps) which causes an
impairment of £0.2m. Headroom would be eliminated
by an increase in the WACC of 199bps or a reduction in
revenue growth of 3.4%. The value-in-use headroom of
£60.9m exceeded the carrying asset amount by 15.2%.
Language and Content Technology - Revenue growth:
adjusting revenue by 1% impacts the value in use by
approximately £17m which is a reasonable possible
change. The impairment would be eliminated by
increasing revenue by 3.4%.
IP Services - Due to the signi昀椀cant headroom available
after additional sensitivities have been performed no
additional disclosure is required. The value-in-use
headroom of £216.7m exceeded the carrying asset
amount by 332%.
Taxation - uncertain tax positions
Uncertainties exist in respect of interpretation of
complex tax regulations, including transfer pricing,
and the amount and timing of future taxable income.
Given the nature of the Group’s operating model, the
wide range of international transactions and the longterm nature and complexity of contractual agreements,
di昀昀erences arising between the actual results and
assumptions made, or future changes to assumptions,
could necessitate future adjustments to taxation already
recorded. The Group considers all tax positions on a
separate basis, with any amounts determined by the
most appropriate of either the expected value or most
likely amount on a case by case basis.
Most deferred tax assets are recognised because they
can o昀昀set the future taxable income from existing
taxable di昀昀erences (primarily on acquired intangibles)
relating to the same jurisdiction or entity. Where there
are insu昀케cient taxable di昀昀erences, deferred tax assets
are recognised in respect of losses and other deductible
di昀昀erences where current forecasts indicate pro昀椀ts
will arise in future periods against which they can be
deducted. The total value of uncertain tax positions
('UTPs') was £6.7m (2022: £6.8m), see Note 9.
NOTES TO THE CONSOLIDATED STATEMENTS
RWS Holdings plc — Annual Report 2023
119
