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Tiger Brands Limited Integrated Annual Report
2014
Annual financial statements
13 Impairment testing of non-financial assets
Annually or if there is an indication of impairment, all goodwill and indefinite life intangible assets
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 ten years and
incorporates a terminal growth rate.
These cash flows have been based on the approved budget for the 2015 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.
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 was 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% (2013: 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 11,0% 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%.