AmazonScience/document-haystack

1A review of the Group’s strategy, political or global risks for the asset management industry 2such as a return of the European sovereign debt crisis, uncertainties regarding the 3implementation of already adopted regulation as well as a slowdown of gross domestic 4product growth may negatively impact the performance forecasts and thus, could result in an 5impairment of goodwill in the future.6Carrying Amount7The carrying amount for the cash generated unit is determined based on the Group’s equity.8Recoverable Amount 9The recoverable amount is the higher of the Group’s fair value less costs of disposal and its 10value in use. The Group determines the recoverable amount based on value in use and 11employs the discounted cash-flow method which reflects the specifics of the asset 12management business and its regulatory environment. The model calculates the present 13value of the estimated future earnings that are distributable to the shareholders after fulfilling 14the respective regulatory capital requirements.15The discounted cash-flow method uses earnings projections based on five-year strategic 16plans, which are discounted to their present value. Estimating future earnings involves 17judgment and the consideration of past and current performance as well as expected capital 18retention requirements/contributions in line with the business plan, market expectations and 19commercial, legal or regulatory requirements.20Earnings projections beyond the initial five-year period are adjusted to derive a sustainable 21level. In case of a going concern, the cash flow to equity is assumed to increase by or 22converge towards a constant long-term growth rate of up to 2.0% in 2023 and 2.0% in 2022. 23This is based on the revenue forecast as well as expectations for the development of gross 24domestic product and inflation and is captured in the terminal value. 25Key Assumptions and Sensitivities 26Key Assumptions: The recoverable amount of a cash generated unit is sensitive to the 27earnings projections, to the discount rate (cost of equity) applied and to the long-term growth 28rate. The discount rates applied have been determined based on the capital asset pricing 29model and comprise a risk-free interest rate, a market risk premium and a factor covering the 30systematic market risk (beta factor). The values for the risk-free interest rate, the market risk 31premium and the beta factors are determined using external sources of information. Cash 32generated unit-specific beta factors are determined based on a respective group of peer 33companies. Variations in all of these components might impact the discount rates. The Group 34use a discount rate (after tax) of 10.9% in 2023 (2022: 10.3%).35Management determined the values for the key assumptions based on a combination of 36internal and external analysis. Estimates for efficiency and the cost reduction program are 37based on progress made to date and scheduled future projects and initiatives38Key Management Assumptions are:39— Maintaining leadership in mature markets (e. g., Equity, Multi-Asset and Fixed income)40— Expanding true areas of strength like Xtrackers and Alternatives41— Further build out digital capabilities42— Expand distribution partnerships to expand our global business 43— Continue a multi-year execution to replace core infrastructure platforms44Uncertainty associated with key assumptions and potential events/circumstances that could 45have a negative effect:46— Challenging and continued uncertainty around the market environment and volatility 47unfavourable to our investment strategies48— Unfavourable margin development and adverse competition levels in key markets and 49products beyond expected levels50— Business/execution risks, e. g., under achievement of net flow targets from market 51uncertainty, loss of high quality client facing employees, unfavourable investment 52performance, lower than expected efficiency gains 53— Uncertainty around regulation and its potential implications not yet anticipated54Sensitivities: To test the resilience of the recoverable amount, key assumptions used in the 55discounted cash-flow model (for example, the discount rate and the earnings projections) are 56sensitized. Management believes that no reasonable changes in key assumptions could cause 57an impairment loss.58         59To our 60Shareholders61Summarised 62Management Report63Consolidated 64Financial Statements Compensation Report Corporate Govern-65ance Statement66Supplementary 67Information DWS 2023 Annual Report68 69Notes to the Consolidated Balance Sheet70102 12 – Goodwill and Other Intangible Assets