NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS for the period ended 28 July 2018 C2 INTANGIBLE ASSETS (CONTINUED) Impairment of non-financial assets (continued) The decrease in the recoverable amount reflected an acceleration of changes to market conditions during the period, with a more challenging and competitive retail market leading to a deterioration in financial performance from previous expectations. As a consequence, this led to a moderated outlook for the business over the forecast period and was reflected in management's expectations of future cash flows. The key assumptions used in the model were: Key assumption 2018 2017 Approach used to determine value The pre-tax discount rate is sourced from observable market information and is risk- Discount rate (pre-tax) 14.8% 14.4% adjusted relative to the risks associated with the net pre-tax cash flows being achieved. The pre-tax discount rate has increased since the previous reporting period. This is the weighted average growth rate used to extrapolate cash flows beyond the five- Terminal growth rate 1.7% 2.5% year forecast period. The rate has declined since the previous reporting period to reflect changes in external market expectations. Average annual EBITDA margin over the five-year forecast period, applied to sales forecast consistent with external market forecasts. The average annual EBITDA margin Average EBITDA margin 5.4% 7.0% is based on external sources of information, past performance and management’s expectations. This assumption incorporates anticipated market conditions, sales channel performance, and management’s expectations of margin improvement and future cost saving initiatives. The assumptions used to record the impairment remain appropriate to use for the assessment at the end of the financial reporting period. Therefore the recoverable amount continues to approximate carrying value, and any adverse movement in these assumptions may lead to further impairment. The recoverable amount is based on operating and cashflow performance stabilising, however the timing of cashflow benefits arising from initiatives could be influenced by market conditions. The recoverable amount is highly sensitive to changes in all of the key assumptions. The impact of these changes in key assumptions is shown in the table below and has been calculated in isolation from other changes. Sensitivities disclosed have been calculated by applying consistent cash flows assumptions to the interim reporting period, adjusting for discounting and the balance sheet at the end of the financial reporting period. Key assumption SensitivityImpact of Sensitivity Discount rate +1% Further impairment of $78 million Terminal growth rate -1% Further impairment of $58million Average EBITDA margin -0.4% Further impairment of $118 million During the period,a review of the carrying value of the assets for each Myer store was undertaken and if indicators of impairment are identified, the recoverable amount of these store assets would be determined using a value-in-use discounted cash flow model. This model uses cash flow projections based on financial budgets approved by management covering a five-year period. The key assumptions in the model are consistent with those noted above. Based on this, the Group identified indicators of impairment in respect of the Mt Gravatt store at the interim reporting period and has recognised an impairment of the store’s plant and equipment of $4.2 million. The review performed at the end of the financial reporting period did not identify any further impairment of store assets. Myer Annual Report 2018 61