Goodwill

Goodwill has been attributed to cash generating units (as identified under IAS 36 Impairment of Assets) as follows:

Goodwill consists both of goodwill capitalised under Irish GAAP which at the transition date to IFRS was treated as deemed cost and goodwill that arose on the acquisition of businesses since that date which was capitalised at cost and subsequently at fair value and represents the synergies arising from cost savings and the opportunity to utilise the extended distribution network of the Group to leverage the marketing of acquired products.

In line with IAS 36 Impairment of Assets goodwill is allocated to each cash generating unit (CGU) which is expected to benefit from the combination synergies. These CGU’s represent the lowest level within the Group at which goodwill is monitored for internal management purposes.

All goodwill is regarded as having an indefinite life and is not subject to amortisation under IFRS but is subject to annual impairment testing.

In the prior financial year, on disposal of Peppermint Events Limited the Group reversed the adjustment to Goodwill amounting to €0.6m for non-controlling interest.

Brands

Brands are expected to generate positive cash flows for as long as the Group owns the brands and have been assigned indefinite lives.

Capitalised brands include the Tennent’s beer brands and the Gaymers cider brands acquired during FY2010, Waverley wine brands acquired during FY2013 and the Matthew Clark and Bibendum brands acquired during FY2019.

The Tennent’s, Gaymers, Waverley wine brands and Matthew Clark and Bibendum brands were valued at fair value on the date of acquisition in accordance with the requirements of IFRS 3 (2008) Business Combinations by independent professional valuers. The Waverley wine brands were valued at cost.

The carrying value of the Tennent’s beer brand as at 28 February 2021 amounted to €73.5m (FY2020: €75.0m) and has an indefinite life which is subject to annual impairment testing. The movement in the current financial year is due to translation adjustment.

The carrying amount of brands with indefinite lives are allocated to operating segments as follows:

The brands are protected by trademarks, which are renewable indefinitely in all major markets where they are sold and it is the Group’s policy to support them with the appropriate level of brand advertising. In addition, there are not believed to be any legal, regulatory or contractual provisions that limit the useful lives of these brands. Accordingly, the Directors believe that it is appropriate that the brands be treated as having indefinite lives for accounting purposes.

No intangible assets were acquired by way of government grant, there is no title restriction on any of the capitalised intangible assets and no intangible assets are pledged as security. There are no contractual commitments in relation to the acquisition of intangible assets at year end.

In the prior financial year, the Group recognised an impairment charge of €34.1m relating to the North America cash generating unit and €0.1m relating to Matthew Clark Bibendum cash generating unit.

Other intangible assets

Other intangible assets have been attributed to operating segments (as identified under IFRS 8 Operating Segments) as follows:

In the current financial year, the Group wrote off an IT intangible asset where the project was not completed, as a direct consequence of COVID-19 of €0.3m (FY2020: €2.4m).

Other intangible assets comprise the fair value of trade relationships acquired as part of the acquisition of Matthew Clark and Bibendum in FY2019, trade relationships acquired as part of the acquisition of TCB Wholesale during FY2015, the Gleeson trade relationships acquired during FY2014 and 20 year distribution rights for third party beer products acquired as part of the acquisition of the Tennent’s business during FY2010. These were valued at fair value on the date of acquisition in accordance with the requirements of IFRS 3 (2008) Business Combinations by independent professional valuers. The intangible assets have a finite life and are subject to amortisation on a straight-line basis. Also included within Other Intangible assets are software and licences.

The amortisation charge for the year ended 28 February 2021 with respect to intangible assets was €2.6m (2020: €2.5m).

Impairment testing

To ensure that goodwill and brands that are considered to have an indefinite useful economic life are not carried at above their recoverable amount, impairment testing is performed comparing the carrying value of the assets with their recoverable amount using value-in-use computations. Impairment testing is performed annually or more frequently if there is an indication that the carrying amount may not be recoverable. Where the value-in-use exceeds the carrying value of the asset, the asset is not impaired.

As permitted by IAS 36 Impairment of Assets, the value of the Group’s goodwill has been allocated to groups of cash generating units (CGU), which are not larger than an operating segment determined in accordance with IFRS 8 Operating Segments. These business segments represent the lowest levels within the Group at which the associated goodwill is monitored for management purposes.

The recoverable amount is calculated using value-in-use computations based on estimated future cash flows discounted to present value using a discount rate appropriate to each cash generating unit and brand. Terminal values are calculated on the assumption that cash flows continue in perpetuity.

The key assumptions used in the value-in-use computations using level 3 inputs in accordance with fair value hierarchy are:

1. Expected volume, net revenue and operating profit growth rates – cash flows for each CGU and brand are based on detailed financial projections for years one and two which were then projected out for years three, four and five.
2. Long-term growth rate – cash flows after the first five years were extrapolated using a long-term growth rate, on the assumption that cash flows for the first five years will increase at a nominal growth rate in perpetuity.
3. Discount rate.

The key assumptions were based on management’s assessment of anticipated market conditions for each CGU. The key assumption for the Group in the current financial year is COVID-19, how and when restrictions are lifted and the corresponding impact on the trade as the sector reopens. The Group took into account historical experience and in particular the Group’s experience over the last twelve month period. The Group also considers its core strengths and weaknesses in the markets in which it operates and external factors such as macro-economic factors, inflation expectations by geography, regulation and expected changes in regulation (such as expected changes to duty rates and minimum pricing), market growth rates, sales price trend, competitor activity, market share targets and strategic plans and initiatives.

A terminal growth rate of 1.75%-2.00% (FY2020: 1.75%-2.00%) in perpetuity was assumed based on an assessment of the likely long-term growth prospects for the sectors and geographies in which the Group operates. The resulting cash flows were discounted to present value using a range of discount rates between 7.11%-8.41% (FY2020: 5.60%-8.25%); these rates are in line with the Group’s estimated pre-tax weighted average cost of capital for the three main geographies in which the Group operates (Ireland, Great Britain and North America), arrived at using the Capital Asset Pricing Model as adjusted for asset and country specific factors.

In the prior financial year, with regard to the Group’s North America segment and in particular the Woodchuck suite of brands, the projected cash flows no longer supported the carrying value of the brand and an impairment of €34.1m was taken at 29 February 2020.

In the prior financial year, the Group also booked an impairment of €0.1m with respect to the Group’s Matthew Clark Bibendum cash generating unit directly related to a discontinued brand.

The Group has performed the detailed impairment testing calculations by cash generating units with the following discount rates being applied:

The impairment testing carried out at year end identified headroom in the recoverable amount of all the Group’s goodwill and intangible assets (FY2020: impairment of €34.1m in North America).

Significant goodwill amounts

The goodwill allocated to Ireland, C&C Brands and MCB CGU’s amount to 30% (FY2020: 29%), 34% (FY2020: 34%) and 20% (FY2020: 20%) of the total carrying amount of goodwill respectively.

Sensitivity analysis

In the current financial year, the impairment testing carried out as at 28 February 2021 identified headroom in the recoverable amount of the brands and goodwill compared to their carrying values.

The key sensitivities for the impairment testing are net revenue and operating profit assumptions, discount rates applied to the resulting cash flows and the expected long-term growth rates.

The value-in-use calculations indicate significant headroom in respect of all cash generating units. The cash generating unit with the least headroom, is the C&C Brands cash generating unit although the headroom is in excess of €68m. The table below identifies the impact of a movement in the key inputs with respect to C&C Brands.

The Group concludes that no reasonable movement in any of the underlying assumptions would result in a material impairment in any of the Group’s cash generating units or brands.