Notes to the financial statements
11 Goodwill
|
£m |
||
|---|---|---|
|
Cost |
||
|
At 31 March 2012 |
333.0 |
|
|
Disposal (Note 29) |
(176.4) |
|
|
Exchange |
(9.3) |
|
|
At 31 March 2013 and 31 March 2014 |
147.3 |
|
|
Accumulated impairment |
||
|
At 31 March 2012 |
(73.0) |
|
|
At 31 March 2013 |
(73.0) |
|
|
Impairments in the year ended 31 March 2014 |
– |
|
|
At 31 March 2014 |
(73.0) |
|
|
Net book amount at 31 March 2014 |
74.3 |
|
|
Net book amount at 31 March 2013 |
74.3 |
Impairment testing of goodwill
Acquired goodwill has been allocated for impairment testing purposes to four groups of cash generating units (‘CGUs’): Dairies, Spreads, MH Foods and Cheese. At March 2012 goodwill in relation to the Dairies CGU was fully impaired and the carrying value of goodwill for this CGU at 31 March 2014 is nil.
All groups of CGUs with goodwill are tested for impairment annually by comparing the carrying amount of that CGU with its recoverable amount. Recoverable amount is determined based on a value-in-use calculation using cash flow projections based on financial budgets and strategic plans approved by senior management covering a three-year period and appropriate growth rates beyond that. The discount rate applied to the projections is 9.8% for Spreads and 9.4% for MH Foods and Cheese (2013: 8.7% for all CGUs).
Discount rates are pre-tax and calculated by reference to average industry gearing levels, the cost of debt and the cost of equity based on the capital asset pricing model and CGU-specific risk factors.
The growth rate used to extrapolate cash flows beyond the three-year period for MH Foods and Cheese is 2.0% per annum (being the estimated UK long-term growth rate adjusted for industry growth rates and extrapolation risks) (2013: 2.0% per annum beyond year three). The growth rate used to extrapolate cash flows beyond the three-year period for Spreads is nil reflecting the minimal growth rates in that market (2013: 2% per annum beyond year three).
The carrying amount of goodwill allocated to groups of CGUs at 31 March 2014 is:
|
Dairies |
Nil |
(2013: nil) |
|
MH Foods |
£6.7 million |
(2013: £6.7 million) |
|
Spreads |
£65.5 million |
(2013: £65.5 million) |
|
Cheese |
£2.1 million |
(2013: £2.1 million) |
Discount rates – reflect management’s estimate of the risk-adjusted weighted average cost of capital for each CGU.
Raw materials prices – budgets are prepared using the most up to date price and forecast price data available. This is based on forward prices in the market place adjusted for any contracted prices at the time of forecast. The key resources are milk, vegetable oils, fuel oil, diesel, gas and electricity and packaging costs.
Growth rate estimates – for periods beyond the length of the strategic plans, growth estimates are based upon published industry research adjusted downwards to reflect the risk of extrapolating growth beyond a three year time frame. For the residential business, long-term rates of market decline as seen over recent years have been extrapolated forward offset by growth assumptions for milk&more, FRijj and the liquid milk business.
The Directors consider the assumptions used to be consistent with the historical performance of each CGU where appropriate and to be realistically achievable in the light of economic and industry measures and forecasts.
2013/14 and 2012/13
Sensitivity to changes in assumptions
With regard to the assessment of value in use of the Spreads, MH Foods and Cheese CGUs, management believes that no reasonably possible change in the above key assumptions would cause the carrying value of those units to exceed their recoverable amount.