13 Impairment testing of non-financial assets
  Annually, or if there is an indication of impairment, all indefinite life intangible assets and goodwill are assessed for impairment. Goodwill acquired through business combinations, trademarks, licence agreements, supplier relationships, customer lists and restraint of trade agreements have been allocated to cash-generating units to facilitate this assessment.
  The key assumptions disclosed below are based on management’s experience and expectations. Based on this experience and the well-established brands the group owns, management considers forecast cash flow periods in excess of five years to be appropriate.
13.1 Methods and assumptions
  The group applies a discounted cash flow methodology (value in use) to assess goodwill and certain indefinite life intangible assets for impairment. This methodology entails a calculation of the present value of future cash flows generated by applicable cash-generating units over a period of five to 10 years and incorporates a terminal growth rate.
  These cash flows have been based on the approved budget for the 2016 financial year which include assumptions on profit before interest and tax, depreciation, working capital movements, capital maintenance expenditure, an appropriate discount rate and a terminal growth rate. The terminal growth rate used is 1% (2014: 1%); however, it is dependent on the industry and maturity of the cash-generating unit.
  Trademarks
  The group applies the “relief from royalty” valuation methodology to value trademark assets. This methodology entails quantifying royalty payments, which would be required if the trademark were owned by a third party and licensed to the company.
  Main inputs used are forecast future sales, a notional royalty rate payable in an arm’s length transaction and an appropriate discount rate.
  Customer lists
  The group applies the “multi-period excess earnings” valuation methodology to value customer lists. The method is based on apportioning the returns earned by a business across its tangible and intangible assets.
  Main inputs used are forecast sales to which the customer relationships contribute and estimated cash flows earned from these sales, a tax rate of 28% (2014: 28%) and a required rate of return.
13.2 Discount rates
  The group has calculated a weighted average cost of capital (WACC) which is utilised as a basis for performing the value-in-use calculation. In cases where the CGU is deemed to be of greater risk than the group as a whole, a risk premium has been included within the discount rate applied. The discount rate utilised for the purposes of the impairment testing was between 11,5% and 19,7% (2014: 11,0% and 15,5%).
13.3 Growth rates
  In determining the growth rate, consideration is given to the growth potential of the respective CGU. As part of this assessment, a prudent outlook is adopted that mirrors an inflationary increase in line with the consumer price index and real growth expected within the specific market. Based on these factors, the nominal price growth rates applied for the purposes of the impairment testing ranges between 1% and 6%. Volume growth assumptions are based on management’s best estimates of known strategies and future plans to grow the business. The terminal growth rates applied were between 1% and 8%.
13.4 Specific impairments in the current year
  GROUP
  2015   2014  
Nigeria – TBCG property, plant and equipment (refer note 11.6) (1 371,1)   (105,2)  
Nigeria – Deli Foods goodwill and intangible assets (refer note 12.1 and 12.3) (250,4)   (48,0)  
HPCB – Indefinite life intangible asset (refer note 12.3) (29,6)   (15,7)  
Grains – Property, plant and equipment (refer note 11.6) (22,4)   –  
Nigeria – Deli Foods property, plant and equipment (refer note 11.6) (11,8)   –  
International operations – Eastern Africa property, plant and equipment (refer note 11.6) (5,6)   –  
Nigeria – TBCG goodwill and related intangible assets (refer note 12.1 and 12.3) –   (848,7)  
Consumer Brands – property, plant and equipment (refer note 11.6) –   (40,1)  
HPCB – write-off of non-core domestic trademarks (refer note 12.3) –   (4,0)  
Total (1 690,9)   (1 061,7)  

Impairments were recognised in the current year as a result of the annual impairment assessments performed on goodwill, other intangible assets, as well as property, plant and equipment. The impairments noted in TBCG arose mainly as a result of macro-economic factors. In addition, the value of these impairments was increased at a Tiger Brands level as a result of the decision taken to discontinue funding to TBCG as noted in note 39. Given these factors and since the group is unlikely to derive any benefit from TBCG’s business through continued use, the recoverable amount of the respective CGUs to the group has been determined as the fair value less cost of disposal. As a result, an impairment of R1,4 billion has been recognised against the affected CGU’s property, plant and equipment and the remaining value of the CGU has been assessed as minimal. In determining this fair value, a capital asset pricing model was used to perform the valuation taking into consideration 10-year forecasts and the additional capital requirements of the business. In addition, the inputs into the model were mainly level 3 in terms of the fair value hierarchy and based on a WACC rate of 19,7% (2014:15,5%). The impairments recognised in the prior year within the TBCG business, arose due to overcapacity within that business. Furthermore, the carrying value of the company’s investment in TBCG has also been evaluated and an impairment of R678,8 million recognised at a company level.
13.5 Changes in key assumptions
  The determined value in use of each CGUs is most sensitive to the discount rate. No reasonably probable change in any of the above key valuation assumptions would cause the carrying amount of CGUs to materially exceed their recoverable amounts.