Annual Report 2020

12. GOODWILL & INTANGIBLE ASSETS

	Goodwill	Brands	Other intangible assets	Total
	€m	€m	€m	€m
Cost
At 1 March 2018	494.7	300.2	4.5	799.4
Acquisition of Matthew Clark and Bibendum (note 10)	102.9	16.9	10.3	130.1
Additions	-	-	3.1	3.1
Reclassification from property, plant & equipment (note 11)	-	-	16.6	16.6
Translation adjustment	3.6	5.0	0.2	8.8
At 28 February 2019	601.2	322.1	34.7	958.0
Additions	-	-	4.5	4.5
Write-back relating to non-controlling interest	0.6	-	-	0.6
Disposals	-	-	(0.1)	(0.1)
Translation adjustment	1.1	2.0	0.1	3.2
At 29 February 2020	602.9	324.1	39.2	966.2
Amortisation and impairment
At 1 March 2018	76.2	180.4	1.7	258.3
Reclassification from property, plant & equipment (note 11)	-	-	13.6	13.6
Amortisation charge for the year	-	-	2.4	2.4
At 28 February 2019	76.2	180.4	17.7	274.3
Disposals	-	-	(0.1)	(0.1)
Impairment charge for the year	-	34.2	2.4	36.6
Amortisation charge for the year	-	-	2.5	2.5
At 29 February 2020	76.2	214.6	22.5	313.3
Net book value
At 29 February 2020	526.7	109.5	16.7	652.9
At 28 February 2019	525.0	141.7	17.0	683.7

Goodwill

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

	Ireland	Scotland	C&C Brands	North America	Export	MCB	Total
	€m	€m	€m	€m	€m	€m	€m
At 1 March 2018	154.5	58.5	180.3	9.2	16.0	-	418.5
Acquisition of Matthew Clark and Bibendum (note 10)	-	-	-	-	-	102.9	102.9
Translation adjustment	-	1.0	0.5	-	-	2.1	3.6
At 28 February 2019	154.5	59.5	180.8	9.2	16.0	105.0	525.0
Write-back relating to non-controlling interest	-	-	-	-	-	0.6	0.6
Translation adjustment	-	0.3	0.1	-	-	0.7	1.1
At 29 February 2020	154.5	59.8	180.9	9.2	16.0	106.3	526.7

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 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.

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 the financial year ended 28 February 2010, Vermont Hard Cider Company cider brands and Waverley wine brands acquired during the financial year ended 28 February 2013.

The Tennent’s, Gaymers and Vermont Hard Cider Company 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 29 February 2020 amounted to €75.0m (2019: €74.6m) and has an indefinite life which is subject to annual impairment testing. The movement in the current financial year is due to currency exchange.

In the prior financial year, as a result of the acquisition of Matthew Clark and Bibendum the Group acquired brands which were valued at fair value on the date of acquisition in accordance with IFRS 3 Business Combinations by independent professional valuers. The brands identified as part of the acquisition were predominantly the Matthew Clark and Bibendum brand. The brands have an indefinite life and are subject to annual impairment testing.

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

	Great Britain	International	MCB	Total
	€m	€m	€m	€m
At 28 February 2018	89.1	30.7	-	119.8
Acquisition of Matthew Clark and Bibendum (note 10)	-	-	16.9	16.9
Translation adjustment	2.6	2.1	0.3	5.0
At 28 February 2019	91.7	32.8	17.2	141.7
Impairment charge for the year	-	(34.1)	(0.1)	(34.2)
Translation adjustment	0.6	1.3	0.1	2.0
At 29 February 2020	92.3	-	17.2	109.5

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 current 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 Clarke Bibendum cash generating unit as outlined in further detail below.

Other intangible assets

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

	Ireland	Great Britain	International	MCB	Total
	€m	€m	€m	€m	€m
Cost
At 1 March 2018	2.0	2.5	-	-	4.5
Additions	1.7	-	-	1.4	3.1
Arising on acquisition of Matthew Clark and Bibendum (note 10)	-	-	-	10.3	10.3
Reclassification from property, plant & equipment (note 11)	3.1	13.2	0.3	-	16.6
Translation adjustment	-	0.1	-	0.1	0.2
At 28 February 2019	6.8	15.8	0.3	11.8	34.7
Additions	-	2.1	-	2.4	4.5
Disposals	-	-	-	(0.1)	(0.1)
Translation adjustment	-	-	-	0.1	0.1
At 29 February 2020	6.8	17.9	0.3	14.2	39.2
Amortisation and impairment
At 1 March 2018	0.5	1.2	-	-	1.7
Reclassification from property, plant & equipment (note 11)	1.1	12.3	0.2	-	13.6
Amortisation charge for the year	0.5	0.7	-	1.2	2.4
At 28 February 2019	2.1	14.2	0.2	1.2	17.7
Disposals	-	-	-	(0.1)	(0.1)
Impairment charge for the year	-	-	-	2.4	2.4
Amortisation charge for the year	0.7	0.2	0.1	1.5	2.5
At 29 February 2020	2.8	14.4	0.3	5.0	22.5
Net book value
At 29 February 2020	4.0	3.5	-	9.2	16.7
At 28 February 2019	4.7	1.6	0.1	10.6	17.0

At year end, the Group wrote off an IT intangible asset where the project will now not be completed, as a direct consequence of COVID-19 of €2.4m.

In the prior year, due to the acquisition of Matthew Clark and Bibendum, the Group acquired trade relationships which were valued at fair value at the date of acquisition in accordance with the requirements of IFRS 3 Business Combinations by independent professional valuers. These trade relationships have a finite life and are subject to amortisation on a straight-line basis.

Other intangible assets also comprise the fair value of 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.

During the prior financial year, the Group reclassified assets from property, plant & equipment which were deemed to be more appropriately classified as intangible assets. This assets primarily related to software and licences.

The amortisation charge for the year ended 29 February 2020 with respect to intangible assets was €2.5m (2019: €2.4m).

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, 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:-

• Expected volume, net revenue and operating profit growth rates – cash flows for each CGU and brand are based on detailed financial budgets and plans. These plans were recalculated post year end in light of COVID-19 and reflect the best estimate of the Group’s projected cash flows over the next five years;
• 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;
• Discount rate.

The key assumptions were based on management assessment of anticipated market conditions for each CGU both in the current financial year and over the next five years in light of COVID-19. A terminal growth rate of 1.75%-2.00% (2019: 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 5.6%-8.3% (2019: 6.0%-8.3%); 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 formulating the budget the Group takes into account historical experience, an appreciation of 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. The key macro-economic factor that influenced the cash flows was undoubtedly COVID-19 and the Group’s assessment of how a recovery takes place.

With regard to the Group’s North America segment and 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. Despite some signs of volume growth last summer on the back of innovation launches, the Woodchuck brands continue to struggle in an ever more crowded market place. The overall Cider category remains under pressure and is declining in value terms. The success of the relatively new Hard Seltzers’ category in particular has squeezed other categories and resulted in less space being made available for our brands. In the short and medium term the outlook is not positive for growth in Cider in the US and the COVID-19 crisis and linked restrictions has further restricted our ability to innovate and trade our way back to sustainable profit growth.

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 unit’s with the following discount rates being applied:

Market	Discount rate 2020	Discount rate 2019	Terminal growth rate 2020	Terminal growth rate 2019
Ireland	7.25%	8.3%	2.00%	2.00%
Scotland	7.25%	6.2%	2.00%	2.00%
C&C Brands	7.25%	6.2%	2.00%	2.00%
North America	8.25%	6.0%	1.75%	1.75%
Export	5.6%	6.2%	2.00%	2.00%
Matthew Clark Bibendum	7.25%	6.2%	2.00%	2.00%

The impairment testing carried out during the year led to an impairment charge of €34.1m (2019: €nil) to the North America cash generating unit as outlined above. All other segments had sufficient headroom.

Significant goodwill amounts

The goodwill allocated to Ireland, C&C Brands and MCB CGU’s amount to 29% (2019: 29%), 34% (2019: 34%) and 20% (2019: 20%) of the total carrying amount of goodwill respectively.

	Ireland		C&C Brands		MCB
	2020	2019	2020	2019	2020	2019
Goodwill allocated to the cash-generating unit at balance sheet date	154.5	154.5	180.9	180.8	106.3	105.0
Discount rate applied to the cash flow projections (real pre-tax)	7.25%	8.3%	7.25%	6.2%	7.25%	6.2%

Sensitivity analysis

In the current financial year, the impairment testing carried out as at 29 February 2020 identified headroom in the recoverable amount of the brands and goodwill compared to their carrying values with the exception of the Woodchuck suite of brands within the Group’s North America cash generating unit.

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 other 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 €50m. The table below identifies the impact of a movement in the key inputs with respect to C&C Brands.

	2020
	Movement	Increase/(decrease on headroom
	%	€m
Increase/decrease in operating profit	2.5/(2.5)	7.0/(7.0)
Increase in discount rate	0.25	(10.2)
Decrease in discount rate	(0.25)	11.2
Increase in terminal growth rate	0.25	11.7
Decrease in terminal growth rate	(0.25)	(10.7)

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.