Annual Report 2020

11. PROPERTY, PLANT & EQUIPMENT

No depreciation is charged on freehold land which had a book value of €14.0m at 29 February 2020 (28 February 2019: €13.0m).

Valuation of freehold land, buildings and plant & machinery - 29 February 2020

In the current financial year, the Group engaged the Real Estate & Capital Equipment Valuation team of PricewaterhouseCoopers LLP to value the Group’s freehold land & buildings and plant & machinery at the Group’s manufacturing facilities in Clonmel (Tipperary), Wellpark (Glasgow), and Vermont (USA) along with the Group’s depots in Ireland and the Group’s facility in Castel Branco in Portugal. The valuers are members of the Royal Institution of Chartered Surveyors with experience of undertaking property, plant and equipment valuations on a global basis.

Two methodologies were applied to value the land & buildings depending upon the type of asset. For specialised assets, such as the production facilities at Clonmel, Wellpark Brewery, Vermont and Portugal the Depreciated Replacement Cost approach has been applied. The distribution warehouses comprise standard distribution facilities with an active market and therefore they are valued using a market approach. The Depreciated Replacement Cost approach was also used to derive fair value for the plant & equipment at the Group’s manufacturing facilities given their specialised nature.

The result of these external valuations, as at 29 February 2020, was an increase in the value of freehold land & buildings of €2.2m which €1.1m was credited to the P&L and €1.1m was credited to the revaluation reserve. The value of plant & machinery decreased by €2.1m which was expensed to the Income Statement as there was no previously recognised gain in the revaluation reserve against which to offset.

Valuation of freehold land, buildings and plant & machinery - 28 February 2019

In the prior financial year, for all freehold land & buildings and plant & machinery, an internal valuation was completed by the Directors as at 28 February 2019. As part of their valuation assessment, the Directors considered the following factors and their impact in determining year end valuation of the Group’s property, plant & equipment:-

• market fluctuations of land and industrial property prices since the date of the last external valuation,
• fluctuations driven by market commodity prices, of the gross replacement cost of property, plant & machinery,
• projected asset utilisation rates based on FY2020 budgeted/forecasted production volumes,
• changes to functional and physical obsolescence of plant & machinery beyond that which would normally be expected, and continued appropriateness of the assumed useful lives of property, plant & machinery.

Having considered the above variables, the Directors estimated that the changes arising from market fluctuations and anticipated utilisation rates would not result in a material change to the valuation of the carrying value of these items of property, plant & equipment and hence no adjustment to their carrying value was deemed necessary in the prior financial year.

Useful Lives

The following useful lives were attributed to the assets:

Fair value hierarchy

The valuations of freehold land & buildings and plant & machinery, excluding leases capitalised under IFRS 16 Leases, are derived using data from sources which are not widely available to the public and involve a degree of judgement. For these reasons, the valuations of the Group’s freehold land & buildings and plant & machinery are classified as ‘Level 3’ as defined by IFRS 13 Fair Value Measurement, and as illustrated below:

Measurement techniques

The Group used the following techniques to determine the fair value measurements categorised in Level 3:

• The Group’s depots are valued using a market value approach. The market value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
• The Group’s specialised assets such as the production facilities at Clonmel, Wellpark, Vermont and Portugal are valued using the depreciated replacement cost approach. Depreciated replacement cost is assessed, firstly, by the identification of the gross replacement cost for each class of asset at each of the Group’s plants. A depreciation factor derived from both the physical and functional obsolescence of each class of asset, taking into account estimated residual values at the end of the life of each class of asset, is then applied to the gross replacement cost to determine the net replacement cost. An economic obsolescence factor, which is derived based on current and anticipated capacity or utilisation of each plant and machinery asset, at each of the Group’s plants, as a function of total available production capacity, is applied to determine the depreciated replacement cost.

Unobservable inputs

The significant unobservable inputs used in the market value measurement of land and buildings is as follows:

The significant unobservable inputs used in the depreciated cost measurement of freehold land & buildings and plant & machinery are as follows:-

The carrying value of depot freehold land & buildings located would increase/(decrease) by €1.1m if the comparable open market value increased/(decreased) by 5%.

The carrying value of freehold land & buildings which is valued on the depreciated replacement cost basis, would increase/(decrease) by €1.3m if the economic obsolescence adjustment factor was increased/(decreased) by 5%. The estimated carrying value of the same land & buildings would increase/(decrease) by €0.9m if the gross replacement cost was increased/(decreased) by 2%.

The carrying value of plant & machinery in the Group which is valued on the depreciated replacement cost basis, would increase/(decrease) by €3.7m if the economic obsolescence adjustment factor was increased/(decreased) by 5%. If the gross replacement cost was increased/(decreased) by 2% the carrying value of the Group’s plant & machinery would increase/(decrease) by €0.8m.

Company

The Company has no property, plant & equipment.