If there is an indication of impairment, or at least annually, all indefinite life intangible assets and goodwill are assessed for impairment unless stated otherwise. Goodwill acquired through business combinations, trademarks, licence agreements, supplier relationships and customer lists have been allocated to cash-generating units to facilitate this assessment.

The key assumptions disclosed below are based on management’s past 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.

The group applies a discounted cash flow methodology (value-in-use) to assess goodwill and certain indefinite life intangible assets for impairment. Where this results in a value lower than the carrying amount, the higher of this value or the fair value less costs to sell is used. For the current year, all recoverable amounts were based on the value-in-use, being the higher value. This methodology entails a calculation of the present value of future cash flows generated by applicable cash-generating units (CGU) over a period of five to 10 years, in instances where the longer period can be justified, and incorporates a terminal growth rate.

These cash flows have been based on the approved budget for the 2019 financial year and strategic plans which include assumptions on profit before interest and tax, depreciation, working capital movements, replacement capital expenditure, an appropriate discount rate and a terminal growth rate. The terminal growth rates applied were between 1,0% and 5,5% (2017: 1,0% and 6,0%), which it is dependent on the industry and maturity of the cash-generating unit.

The group has calculated a post-tax weighted average cost of capital (WACC) which is utilised against post-tax cash flows, 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, an appropriate risk premium has been included within the discount rate applied. The post-tax discount rate utilised for the purposes of the impairment testing was between 12,5% and 17,9% (2017:12,0% and 17,9%). A comparable pre-tax discount rate for the purpose of the impairment testing would be between 16,3% and 21,5% (2017: 16,0% and 21,5%).

In determining the growth rate, consideration is given to the growth potential of the respective CGUs. 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 6% and 9%. Volume growth assumptions are based on management’s best estimates of known strategies and future plans to grow the business.

The table below reflects the detail of the respective impairments for the year, with the comparatives noted:

The impairments recognised in the prior year relate to the Exports, Snacks & Treats and Consumer categories. The specific goodwill and intangible assets were written down to their recoverable amount of R856,6 million, being their value-in-use.
The impairments recognised in relation to the Exports and International segment arose as a result of difficulties experienced throughout the continent as a consequence of deteriorating macroeconomic factors, largely linked to commodity prices. This was exacerbated by severe currency devaluations in Nigeria and Mozambique as well as foreign exchange liquidity and related credit control challenges.