Notes forming part of the financial statements
5. EXCEPTIONAL ITEMS
Impairment of intangible assets (b)
Contract termination (c)
Restructuring costs (d)
Impairment of property, plant & equipment (e)
Acquisition related expenditure (f)
Operating profit exceptional items
Profit on disposal (h)
Share of equity accounted investments’ exceptional items (i)
Total loss before tax
Income tax credit (j)
Total loss after tax
The Group has accounted for the COVID-19 pandemic as an adjusting event in the current financial year and has incurred an exceptional charge of €47.6m at 29 February 2020 in this regard. In light of the closure of on-trade premises in both Ireland and the UK, the Group reviewed the recoverability of its debtor book and advances to customers and booked an expected credit loss provision directly associated with COVID-19 of €19.4m and €5.8m respectively. The Group also reviewed the stock balances and in particular stock that was due to expire in the short to medium term and booked a provision of €10.6m. The balance of €11.8m relates to trade and marketing contracts now deemed to be onerous of €9.4m and the write off of an IT intangible asset where the project will now not be completed, as a direct consequence of COVID-19, of €2.4m.
(b) Impairment of intangible assets
To ensure that goodwill and brands considered to have an indefinite useful economic life are not carried at above their recoverable amount, impairment reviews are performed annually or more frequently if there is an indication that their carrying amount(s) may not be recoverable, comparing the carrying value of the assets with their recoverable amount using value-in-use computations.
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. 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.
An impairment of €0.1m was taken with respect to the Group’s Matthew Clark Bibendum cash generating unit directly attributable to a discontinued brand.
(c) Contract termination
During the current financial year, the Group terminated a number of its long term apple contracts incurring a cost of €4.4m. These apple contracts were deemed surplus to requirements.
(d) Restructuring costs
Restructuring costs of €3.0m were incurred in the current financial year. These costs were primarily relating to severance costs arising from the acquisition and subsequent integration of Matthew Clark and Bibendum of €2.3m. Restructuring costs of €0.5m related to the centralisation of accounting services. Other restructuring initiatives across the Group in the current financial year resulted in a further charge of €0.2m.
In the prior financial year, restructuring costs of €5.3m were incurred primarily relating to severance costs arising from the acquisition and subsequent integration of Matthew Clark and Bibendum and the previously acquired Orchard Pig into the Group, of €3.4m and €0.5m respectively. Other restructuring initiatives across the Group in the prior financial year resulted in a further charge of €1.4m.
(e) Impairment of property, plant & equipment
Property (comprising land and buildings) and plant & machinery are valued at fair value on the Balance Sheet and reviewed for impairment on an annual basis. During the current financial year, as outlined in detail in note 11, the Group engaged external valuers to value the freehold land & buildings and plant & machinery at the Group’s Clonmel (Tipperary), Wellpark (Glasgow), Vermont (USA) and Portugal sites, along with the Group’s various Depots. Using the valuation methodologies, this resulted in a net revaluation loss of €1.0m accounted for in the Income Statement and a gain of €1.1m accounted for within Other Comprehensive Income.
In the prior financial year, the Group took the decision to impair an element of its IT system at a cost of €0.4m which had become redundant following a system upgrade.
(f) Acquisition related expenditure
During the current financial year, the Group incurred €0.2m of costs associated with a previous acquisition.
During the prior financial year, the Group incurred €2.1m of acquisition and integration related costs, primarily with respect to professional fees associated with the acquisition and subsequent integration of Matthew Clark and Bibendum into the Group.
Other costs of €0.6m were incurred during the current financial year with respect to incremental costs related to the dual running of warehouse management systems in Scotland due to system implementation delays.
(h) Profit on disposal
During the current financial year, the Group disposed of its equity accounted investment in a Canadian company for cash proceeds of €6.1m, realising a profit of €2.6m on disposal. Also during the current financial year, the Group disposed of its investment and non-controlling interest in Peppermint Events Limited at a loss of €1.7m.
(i) Share of equity accounted investments’ exceptional items
Property within Admiral Taverns are valued at fair value on the Balance Sheet, the result of the fair value exercise at 29 February 2020 resulted in a revaluation loss (the Group’s share of this loss equated to €2.7m) accounted for in the Income Statement and a gain (the Group’s share of this gain equated to €3.7m) accounted for within Other Comprehensive Income. Also, during the current financial year, the Group invested a further €10.7m which gave rise to capital duties to be expensed in relation to the acquisition (the Group’s share of this expense was €2.9m). This was offset by recognition of the Group’s share of an adjustment made by the investee to recognise a higher deferred tax asset in respect of timing differences on fixed assets in respect of prior years (the Group’s share of this gain was €3.2m). See note 13 for further details.
In the prior financial year, the result of the fair value exercise at 28 February 2019 resulted in a revaluation loss (the Group’s share of this loss equated to €3.3m) accounted for in the Income Statement and a gain (the Group’s share of this gain equated to €7.1m) accounted for within Other Comprehensive Income.
(i) Income tax credit
The tax credit in the current financial year with respect to exceptional items amounted to €9.8m (2019: €1.1m).