The movements in the net carrying amount of goodwill are as follows:
|Gross carrying value|
|Balance at 1 January||47,927||46,412|
|Fair value amendment relating to prior year acquisition||227||—|
|Acquired through business combinations||9,784||1,515|
|Balance at 31 December||57,938||47,927|
|Balance at 1 January||—||—|
|Balance at 31 December||—||—|
|Carrying amount at 31 December||57,938||47,927|
The goodwill acquired during the year relates to the acquisition of Hydraulics and Transmissions Limited, Hewi Slangen, Hi-Power Hydraulics, Hi-Power Limited, Orange County Limited, The Hydraulic Group BV and Group HES Limited; see note 24.
The acquisitions have been recognised in the three operating segments as follows:
|Flowtechnology £000||Power Motion Control |
|Hydraulics and Transmissions Limited (note 24.1)||—||2,447||—||2,447|
|Hewi Slangen (note 24.2)||175||—||—||175|
|Hi-Power Limited (note 24.3)||—||564||—||564|
|Hi-Power Hydraulics (note 24.4)||—||3||—||3|
|Orange County Limited (note 24.5)||—||2,790||2,790|
|The Hydraulics Group BV (note 24.6)||—||1,918||—||1,918|
|Group HES Limited (note 24.7)||—||1,887||—||1,887|
|Total goodwill acquired through business combinations||175||6,819||2,790||9,784|
Goodwill analysed by segment is as follows:
|Flowtechnology UK (Fluidpower Limited, Flowtechnology Cz Limited, Flowtechnology Benelux B.V.)||43,330||43,516|
|Power Motion Control (PMC Fluidpower Group Limited, PMC Fluidpower Limited, Nelson Hydraulics Limited, Hi-Power Limited, The Hydraulic Group BV)||10,864||4,043|
|Process (Process Fluidpower Limited)||3,744||728|
|Total at 31 December||57,938||47,927|
For the purpose of annual impairment testing, goodwill is allocated to the Group's individual statutory trading entities, as they are deemed to be cash generating units. It is anticipated that the Group's cash generating units will be reviewed during the year ending 31 December 2018, as it is expected that the entities will start to benefit from the synergies of the business combinations on which the goodwill arises and will be integrated.
Recoverable amounts for each cash generating unit (CGU) are based on value in use.
The value in use is calculated from cash flow projections based on the Group's forecasts for the year ending 31 December 2018, which are extrapolated for a further four years*. The Group's latest financial forecasts, which cover a three year period, are reviewed by the Board.
* Using growth rates as follows: Fluidpower Limited and Flowtechnology Benelux: 5.7%; PMC Fluidpower Limited, The Hydraulic Group BV, Hi-Power Limited and Nelson Hydraulics Limited: 7.2%; Process Fluidpower Limited: 1.5%
The pre-tax discount rate used to calculate value is 9% (2016: 11%). This discount rate is derived from the Group's weighted average cost of capital.
Cash flow assumptions
The key assumptions for the value in use calculations are those regarding discount rates, growth rates and expected changes in margins. Changes in selling prices and direct costs are based on past experience and expectations of future changes in the market. The growth rates used in the value in use calculation reflect the average growth rate experienced by the Group for the industry.
In respect of the goodwill attributed to Fluidpower Limited, the headroom compared to the carrying value exceeds £29 million. Increasing the discount rate to 22% and leaving all other factors the same would lead to the recoverable amount being equal to the carrying value of the goodwill attributed to Fluidpower Limited.
The Directors do not believe that any other reasonably possible changes in the value of the key assumptions noted above would cause a CGU's carrying amount to exceed its recoverable amount.