Tiger Brands | Annual Financial Statements 2022 - Impairment testing of non-financial assets

Annual financial statements

Impairment testing of non-financial assets

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 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 of five years to be appropriate.

14.1

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. Where this results in a value lower than the carrying amount, the higher of this value or the fair value less costs of disposal is used. For the current year, all recoverable amounts were based on the value in use. This methodology entails a calculation of the present value of future cash flows generated by applicable cash-generating units over a period of five years and incorporates a terminal growth rate.

These cash flows have been based on the approved budget for the 2023 financial year, which includes 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 5,0% (2021: 5,5%), however, it is dependent on the industry and maturity of the cash-generating unit.

14.2

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 cash-generating unit 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 13,6% for South African entities and 18,0% for the international component of Davita (2021: 12,2% and 17,0% respectively). A pre-tax discount rate for purpose of the impairment testing would be between 16,9% and 22,8% (2021: 16,9% and 24,8%).

14.3

Growth rates

In determining the growth rate, consideration is given to the growth potential of the respective cash-generating unit. As part of this assessment, a prudent outlook is adopted that mirrors an inflationary increase in line with the consumer price index (CPI) 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 range between 5% and 10%. Volume growth assumptions are based on management’s best estimates of known strategies and future plans to grow the business.

14.4

Specific impairments in the current year

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

	GROUP
(R’million)	2022	2021
Exports and International – Property, plant and equipment¹	(12,5)	(139,1)
Consumer Brands Food – Property, plant and equipment²	(0,4)	(15,1)
Total	(12,9)	(154,2)

	COMPANY
(R’million)	2022	2021
Other – Interest in subsidiaries³	(98,9)	–
Total	(98,9)	–

¹	Relates to the impairment of property, plant and equipment in Davita (which is included in the Exports and International cash-generating unit) of R9,0 million (2021: Rnil) and R3,5 million in the Deciduous Fruit business (LAF) (2021: R139,1 million). Due to the downturn in the LAF business, which is predominantly an export business, a significant impairment to the property, plant and equipment was recognised in the prior year. The recoverable amounts of these assets are zero.
²	During the prior year, R15,1 million relating to property, plant and equipment in the Groceries business and the IT function was impaired down to zero.
³	As part of the annual impairment assessment performed for all investments by comparing the cost of the investment in dormant entities to its net asset value. The fair value less cost to sell was considered to be nil as these companies are dormant. R48,9 million in company was impaired in relation to Tiger Brands PID No1 Proprietary Limited and R50,0 million in relation to Langeberg Holdings Limited.

The impairments recognised in the current year are as a result of the annual impairment assessment performed on property, plant and equipment, goodwill and indefinite useful life intangible assets.

14.5

Changes in key assumptions

The determined value in use of each cash-generating unit is sensitive to the discount rate. No reasonably probable change in any of the above key valuation assumptions would cause the carrying amount of cash-generating units to materially exceed their recoverable amounts.