Annual Report 2014

NOTES

Forming part of the financial statements

11. BUSINESS COMBINATIONS
12. PROPERTY, PLANT & EQUIPMENT
13. GOODWILL & INTANGIBLE ASSETS
14. EQUITY ACCOUNTED INVESTEES/ Financial assets
15. INVENTORIES

11. BUSINESS COMBINATIONS

Acquisition of businesses

During the current financial year, the Group completed the following two acquisitions:

  • The acquisition of M. & J. Gleeson (Investments) Limited (“Gleeson”) and its subsidiaries, a supplier and distributor of beverages in Ireland was completed on 7 March 2013. The consideration for the acquisition was €12.4m payable in cash, of which €4.4m was deferred for one year. The deferred consideration was paid post year end. As part of this transaction the Group acquired an interest in The Irish Brewing Company Limited , a non-trading company (45.6% of issued Ordinary shares) and Beck & Scott (Services) Limited, a distributor of beverages in Northern Ireland (50% of the issued Ordinary shares and 40% of the issued B Ordinary shares). The value of the investment in these associated companies was less than €0.1m at date of acquisition.
  • On 2 August 2013, the Group acquired Latin American Holdings Limited, together with its subsidiary Biofun Produtos Biológicos do Fundão, Lda (“Biofun”), a manufacturer of apple juice concentrate based in the district of Castelo Branco, Portugal for €0.1m. The acquisition assists in securing future supplies of concentrate. A derivative financial asset in relation to a call option granted to the Group enabling it to purchase trees and orchard maintenance equipment for a nominal price on the tenth anniversary of the acquisition was also acquired. The derivative financial asset was valued by the Group at €0.5m.

During the previous financial year, the Group completed the acquisition of Vermont Hard Cider Company, LLC (“VHCC”) in the United States for a gross consideration of €230.9m ($305.0m). The transaction was completed on 21 December 2012. A working capital settlement of €0.5m, accrued at 28 February 2013 was paid in the current financial year bringing the total working capital settlement to €2.8m ($3.7m or €2.8m euro equivalent at date of transaction and subsequent payment date). The working capital settlement reflects an amount payable over and above the contractual purchase price reflecting ‘normalised working capital’ as set out in the purchase agreement.

Also during the previous financial year, the Group acquired a 92.5% equity holding in The Five Lamps Dublin Beer Company Limited, an Irish craft brewer. The transaction was completed on 4 September 2012 for an investment of less than €0.1m. The company had nominal assets and liabilities at date of acquisition. In line with Article 12 of the Articles of Association of the company, the voting, dividend and repayment of capital rights of B Ordinary Shares shall carry a certain percentage of the aggregate voting rights of all the members depending on the number of milestones achieved by the member holding the B Ordinary Shares. During the current financial year, the first milestone was considered to have been achieved and the ‘B’ ordinary shares, all of which are held by the minority shareholder, attracted additional voting, dividend and repayment of capital rights of 2.5% resulting in the Group’s ownership reducing to 90% and the minority shareholder’s increasing to 10%. Post year end, the second milestone was considered to have been achieved resulting in the Group’s ownership reducing to 87.5% and the minority shareholder’s increasing to 12.5%. The result for the current and prior financial year attributable to the non controlling interest was less than 0.1m.

The book values of the assets and liabilities acquired, from the transactions outlined above, together with the fair value adjustments made to those carrying values, were as follows:-

Gleeson

Initial value

Adjustment to initial

Revised fair

 

assigned

fair value

value

 

€m

€m

€m

 

Property, plant & equipment

49.1

(29.2)

19.9

Other intangible assets

-

1.8

1.8

Inventories

29.5

(3.9)

25.6

Trade & other receivables

35.8

(3.0)

32.8

Trade & other payables

(34.7)

(0.6)

(35.3)

Interest bearing loans & borrowings

(47.9)

-

(47.9)

Deferred tax (liability)/asset

(1.2)

2.1

0.9

 

Net identifiable assets and liabilities acquired

30.6

(32.8)

(2.2)

Goodwill arising on acquisition

14.6

 

12.4

 

Consideration transferred/transferable:

Cash consideration paid

8.0

Deferred consideration

4.4

 

Total consideration

12.4

Biofun

Initial value

Adjustment to initial

Revised fair

 

assigned

fair value

value

 

€m

€m

€m

 

Property, plant & equipment

5.6

(1.0)

4.6

Derivative financial asset

-

0.5

0.5

Inventories

0.4

(0.2)

0.2

Trade & other receivables

1.8

(0.1)

1.7

Trade & other payables

(4.4)

0.1

(4.3)

Interest bearing loans & borrowings

(3.6)

-

(3.6)

Deferred tax liability

-

(0.2)

(0.2)

 

Net identifiable assets and liabilities acquired

(0.2)

(0.9)

(1.1)

Goodwill arising on acquisition

1.2

 

Total consideration paid

0.1

VHCC – February 2013

Initial value

Adjustment to initial

Revised fair

 

assigned

fair value

value

 

€m

€m

€m

 

Property, plant & equipment

3.0

0.7

3.7

Brands & other intangible assets

1.2

157.8

159.0

Financial asset

0.2

(0.2)

-

Inventories

2.8

-

2.8

Trade & other receivables

3.0

-

3.0

Cash & cash equivalents

3.4

-

3.4

Trade & other payables

(2.6)

-

(2.6)

Deferred tax liability

-

(0.2)

(0.2)

 

Net identifiable assets and liabilities acquired

11.0

158.1

169.1

Goodwill arising on acquisition

64.6

 

233.7

 

Consideration transferred/transferable:

Cash consideration paid

230.9

Working capital – initial payment

2.3

Working capital settlement, paid in the current financial year

0.5

 

Total consideration

233.7

 

Net cash outflow arising on acquisition

Cash consideration paid and working capital settlement paid year ended 28 February 2013

233.2

Less: cash & cash equivalents acquired

(3.4)

Net cash outflow FY2013

229.8

 

Working capital settlement, paid in the current financial year

0.5

Net cash outflow FY2014

0.5

The post acquisition impact of acquisitions completed during the current financial year on Group Operating profit for the current financial year and the post acquisition impact of acquisitions completed during the prior financial year on Group Operating profit for that financial year were as follows:-

 

2014

2013

 

€m

€m

Revenue

185.1

6.7

Excise duties

(42.0)

(0.3)

Net revenue

143.1

6.4

Operating costs

(137.8)

(4.6)

Operating profit

5.3

1.8

Income tax expense

(0.5)

-

Results from acquired businesses

4.8

1.8

Acquisition costs of €1.1m (2013: €3.3m) have been shown in exceptional operating costs in the income statement. These costs are directly attributable to the current year acquisitions of Gleeson and Biofun and the prior year acquisition of VHCC. The Group also incurred exceptional integration and restructuring costs as a result of the acquisitions of Gleeson and Biofun as outlined in note 6.

The Gleeson business was acquired on 7 March 2013 and consequently the financial results for Gleeson consolidated into the Group’s financial results for the year ended 28 February 2014 represent that business’ financial results for the full financial year. The Biofun business was acquired on 2 August 2013, all fruit concentrate produced by the acquired business is used internally, and consequently no external revenue or net revenue is generated. The business made a profit of €0.1m in the period since acquisition. The revenue, net revenue and operating profit of the Group for the financial year determined in accordance with IFRS as though the acquisitions effected during the year had been at the beginning of the year would therefore not have been materially different from that reported. All intra group balances, transactions, income and expenses are eliminated on consolidation in accordance with IAS 27 Consolidated Financial Statements.

Acquisition of equity accounted investees

On 22 March 2013, the Group acquired 50% of the equity share capital of Wallaces Express Limited (“Wallaces”), Scotland’s largest wines and spirits wholesaler, for €11.8m. Under the terms of this agreement, the Group entered into a call option arrangement enabling it to serve notice on Wallaces shareholders to acquire the remaining 50% of Wallaces at a predetermined price on 20 March 2015 or earlier at the Group’s option in the event of a breach of warranty by the Seller; and a put option granting Wallaces’ shareholders the right to serve notice on the Group to acquire the remaining 50% during the period January 2015 to March 2015 or earlier at the Sellers option in the event of a change of control, listing or insolvency of the buying company. The related derivative financial asset was valued at €1.2m while the related derivative financial liability was valued at €1.2m.

Post year end, on 18 March 2014, under the terms of a new agreement, the Group acquired the remaining 50% of Wallaces, further details are provided in note 29.

The net identifiable assets and liabilities of Wallaces on date of acquisition of 50% of the equity share capital, 22 March 2013, together with the Group’s fair value adjustments are as outlined below:

Wallaces

Initial value

Adjustment to initial

Revised fair

 

assigned

fair value

value

 

€m

€m

€m

 

Property, plant & equipment

3.7

-

3.7

Brands & other intangible assets

1.4

(1.1)

0.3

Inventories

10.8

-

10.8

Trade & other receivables – current

12.4

-

12.4

Cash & cash equivalents

3.0

-

3.0

Current tax asset/(liability)

0.3

(0.3)

-

Trade & other payables

(14.1)

(0.3)

(14.4)

Bank debt

(0.3)

-

(0.3)

Deferred tax liability

(0.1)

-

(0.1)

 

Net identifiable assets and liabilities on date of acquisition

17.1

(1.7)

15.4

 

The Group’s share of net identifiable assets and liabilities on date of acquisition

7.7

Derivative financial asset arising on acquisition

1.2

Derivative financial liability arising on acquisition

(1.2)

Goodwill (classified within Equity accounted investees)

4.1

Total consideration paid

11.8

Acquisition costs paid

0.2

Equity accounted investees

12.0

Contribution in the year from date of investment to 28 February 2014 was €0.6m. Acquisition costs of €0.2m incurred with respect to this transaction are capitalised within Equity accounted investees on the balance sheet. The total carrying value of the investment at 28 February 2014 was €12.6m.

During the previous financial year, the Group acquired a 25% equity investment in Maclay Group plc, a leading independent Scottish operator of management public houses for €2.5m. The business primarily includes the operation of 15 wholly owned managed houses and 11 managed houses owned by two separate Enterprise Investment Schemes. The total carrying value of the investment, excluding related derivative financial instruments, at 28 February 2014 was €2.0m (2013: €1.9m).

In addition, during the financial year ended 28 February 2013, the Group invested €0.4m in a joint venture with Maclay Group plc in Thistle Pub Company Limited. The total carrying value of this investment, excluding related derivative financial instruments, at 28 February 2014 was €0.4m (2013: €0.5m).

12.PROPERTY, PLANT & EQUIPMENT

 

Motor

 

Freehold

vehicles

 

land &

Plant &

& other

 

buildings

machinery

equipment

Total

 

€m

€m

€m

€m

Group

Cost or valuation

At 1 March 2012

72.3

162.0

91.0

325.3

Translation adjustment

(1.9)

(2.3)

(2.3)

(6.5)

Additions

2.1

8.0

14.2

24.3

Acquisition of business VHCC

-

3.7

-

3.7

 

At 28 February 2013

72.5

171.4

102.9

346.8

 

Translation adjustment

2.8

3.5

3.7

10.0

Additions

0.4

29.7

9.7

39.8

Disposals

-

(1.2)

(25.6)

(26.8)

Acquisition of business Gleeson

10.2

6.8

2.9

19.9

Acquisition of business Biofun

3.1

1.5

-

4.6

 

At 28 February 2014

89.0

211.7

93.6

394.3

 

Depreciation

At 1 March 2012

7.5

83.2

52.8

143.5

Translation adjustment

(0.2)

(0.5)

(1.2)

(1.9)

Charge for the year

1.2

10.7

9.7

21.6

 

At 28 February 2013

8.5

93.4

61.3

163.2

 

Translation adjustment

0.3

1.6

2.1

4.0

Disposals

-

(0.4)

(15.2)

(15.6)

Charge for the year

1.4

11.8

10.6

23.8

 

At 28 February 2014

10.2

106.4

58.8

175.4

 

Net book value

At 28 February 2014

78.8

105.3

34.8

218.9

 

At 28 February 2013

64.0

78.0

41.6

183.6

No depreciation is charged on freehold land, which had a book value of €14.3m at 28 February 2014 (28 February 2013: €10.8m).

Valuation of freehold land, buildings and plant & machinery

In the current financial year, the Group engaged the following external valuers to value the land & buildings and plant & machinery acquired on acquisition of Gleeson and Biofun.

  • Maria dos Anjos F.M. Ramos Engª Civil (I.S.T. – Portugal / Especialista em Avaliações – Ordem dos Engenheiros nº 16.174 (PhD) Doctora Ingª Caminos Canales y Puertos, UPV – Espanha Valuador Panamericana – UPAV – nº 323 Chartered Surveyor – FRICS (UK) to value the Portuguese property, plant & equipment.
  • Frank Frisby supported by Mari G Frisby MSCSI MRICS - F.J. Frisby & Associates and Cearbhall Behan BSc A.SCSI - Behan, Irwin & Gosling to value its freehold properties acquired in the Republic of Ireland, and Don Meghen - Lisney, to value its plant & machinery acquired in the Republic of Ireland.

The valuations were in accordance with the requirements of the RICS Valuation Standards, seventh edition and the International Valuation Standards.

The valuation of both the Irish and Portuguese land & buildings and the Portuguese plant & machinery was on the basis of market value, defined as ‘the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arms-length transaction, after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion’ and was subject to the assumption that the property be sold as part of a continuing business.

In view of the specialised nature of the acquired Gleeson plant & machinery assets and the lack of comparable market evidence of similar plant being sold as a ‘going concern’, a Depreciated Replacement Cost approach was used to assess a Fair Value of the acquired plant & machinery. IAS16 Property, Plant and Equipment prescribes that where there is no market based evidence of Fair Value because of the specialist nature of the item of property, plant and equipment and the item is rarely sold, except as part of a continuing business, an entity may need to estimate Fair Value using an income or a Depreciated Replacement Cost approach to valuation.

The result of these valuations was a reduction of €30.2m to the book value of acquired property, plant & equipment.

In the previous financial year, the Group engaged external valuer, John Coto, Certified Machine & Equipment Appraiser, Alliance Machinery & Equipment Appraisals to value the plant & machinery acquired on acquisition of VHCC. The plant & machinery was valued using the depreciated replacement cost method of valuation. This valuation increased the carrying value of plant & machinery acquired by $1.0m (€0.7m euro equivalent at date of acquisition).

For all other freehold land, buildings and plant & machinery assets held by the Group an internal valuation was completed by the Directors as at 28 February 2014 and 28 February 2013. As part of their valuation assessment, the Directors considered the following factors and their impact in determining the year end valuation of the Group’s property, plant & machinery:-

  • market fluctuations of land and industrial property prices since the date of the last external valuation,
  • fluctuations driven by market commodity prices, of the gross replacement cost of property, plant & machinery,
  • projected asset utilisation rates based on FY2015 budgeted/forecasted production volumes,
  • changes to functional and physical obsolescence of plant & machinery beyond that which would normally be expected, and continued appropriateness of the assumed useful lives of property, plant and machinery.

The following useful lives were attributed to the assets:-

Asset category Useful life

Tanks 30 - 35 years
Process equipment 20 years
Bottling & packaging equipment 15 - 20 years
Process automation 10 years
Buildings 50 years

Having considered the above variables as part of the valuation, the Directors estimate that the changes arising from market fluctuations and anticipated utilisation rates may increase the total value of property, plant & equipment by €0.3m. The Directors do not consider this to be a material variation to the carrying value of property, plant & equipment and hence no adjustment to the carrying value was deemed necessary.

Fair value hierarchy

The valuations of land & buildings and plant & machinery are derived using data from sources which are not widely available to the public and involve a degree of judgement. For these reasons, the valuations of the Group’s land & buildings and plant & machinery are classified as ‘Level 3’ as defined by IFRS 13, and as illustrated below:

 

Quoted prices

Significant observable

Significant unobservable

 

Carrying amount

Level 1

Level 2

Level 3

 

€m

€m

€m

€m

Recurring measurements

Freehold land & buildings excluding those located in the UK

28.3

-

-

28.3

Freehold land & buildings located in the UK

50.5

-

-

50.5

Plant & machinery

105.3

-

-

105.3

 

At 28 February 2014

184.1

-

-

184.1

Measurement techniques

The Group used the following techniques to determine the fair value measurements categorised in Level 3:

  • Land & buildings in Ireland, US and Portugal and plant & machinery located in Portugal are valued using a market value approach. The market value is the estimated amount for which a property should exchange at the valuation date between a willing buyer and a willing seller in an arms length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.
  • Land & buildings located in the UK and plant & machinery in the Group, excluding that located in Portugal, have been valued by the Directors using the depreciated replacement cost approach. Depreciated replacement cost is assessed, firstly, by the identification of the gross replacement cost for each class of asset at each of the Group’s plants. A depreciation factor derived from both the physical and functional obsolescence of each class of asset, taking into account estimated residual values at the end of the life of each class of asset, is then applied to the gross replacement cost to determine the net replacement cost. An economic obsolescence factor, which is derived based on current and anticipated capacity or utilisation of each plant and machinery asset, at each of the Group’s plants, as a function of total available production capacity, is applied to determine the depreciated replacement cost.

Unobservable inputs

The significant unobservable inputs used in the depreciated cost measurement of Land & buildings and Plant & machinery are as follows:

Gross replacement cost adjustment

Increase in gross replacement cost of plant and machinery of 3% (2013: 0%) since previous external valuation, based on discussions with valuers

Economic obsolescence adjustment factor

Economic obsolescence, considered on an asset by asset basis, for each plant, ranging from 0% to 100% (2013: 0% to 100%)

Physical and functional obsolescence adjustment factor

Adjustment for changes to physical and functional obsolescence - nil (2013: nil)

The market value of land and buildings located in Ireland, the US and Portugal is assessed based on a combination of market data and transactions of similar properties in similar locations, where relevant.

The carrying value of plant & machinery in the Group (excluding that located in Portugal), which is valued on the depreciated replacement costs basis, would increase/(decrease) by €4.4m if the economic obsolescence adjustment factor was increased/(decreased) by 5%. If the gross replacement cost was increased/ (decreased) by 5% the carrying value of the Group’s plant & machinery (excluding that located in Portugal) would increase/(decrease) by €4.4m.

The carrying value of freehold land & buildings located in the UK, which is valued on the depreciated replacement cost basis, would increase/(decrease) by €2.4m if the economic obsolescence adjustment factor was increased/ (decreased) by 5%. The estimated carrying value of the same land & buildings located in the UK would increase/ (decrease) by €2.6m if the gross replacement cost was increased/ (decreased) by 5%.

The carrying value of freehold land & buildings located in Ireland, the US and Portugal would increase/ (decrease) by €1.5m if the comparable open market value increased/ (decreased) by 5%.

Company

The Company has no property, plant & equipment.

13.GOODWILL & INTANGIBLE ASSETS

Other

intangible

Goodwill

Brands

assets

Total

€m

€m

€m

€m

Cost

At 1 March 2012

378.5

104.8

1.8

485.1

Translation adjustment

(0.7)

(2.1)

(0.1)

(2.9)

Acquisition of VHCC (note 11)

64.6

159.0

-

223.6

Acquisition of Waverley brands

-

1.3

-

1.3

Additional consideration re prior year acquisition of Hornsby’s cider brand

-

0.4

-

0.4

At 28 February 2013

442.4

263.4

1.7

707.5

Translation adjustment

(0.9)

(1.8)

-

(2.7)

Acquisition of Gleeson (note 11)

14.6

-

1.8

16.4

Acquisition of Biofun (note 11)

1.2

-

-

1.2

At 28 February 2014

457.3

261.6

3.5

722.4

Amortisation

At 1 March 2012

-

-

0.2

0.2

Charge for the year

-

-

0.1

0.1

At 28 February 2013

-

-

0.3

0.3

Charge for the year

-

-

0.2

0.2

At 28 February 2014

-

-

0.5

0.5

Net book value

At 28 February 2014

457.3

261.6

3.0

721.9

At 28 February 2013

442.4

263.4

1.4

707.2

Goodwill

Goodwill has been attributed to reporting segments (as identified under IFRS 8 Operating Segments) as follows:-

 

Cider

Tennent’s

 

ROI

UK

UK

International

Total

 

€m

€m

€m

€m

€m

Cost

At 1 March 2012

120.3

217.8

18.5

21.9

378.5

Translation adjustment

-

(0.5)

(0.6)

0.4

(0.7)

Acquisition of VHCC

-

-

-

64.6

64.6

At 28 February 2013

120.3

217.3

17.9

86.9

442.4

 

Translation adjustment

-

0.6

1.1

(2.6)

(0.9)

Acquisition of Gleeson

14.6

-

-

-

14.6

Acquisition of Biofun

-

-

-

1.2

1.2

 

At 28 February 2014

134.9

217.9

19.0

85.5

457.3

Goodwill consists both of goodwill capitalised under Irish GAAP which at the transition date to IFRS was treated as deemed cost and goodwill that arose on the acquisition of businesses since that date which was capitalised at cost and subsequently at fair value and represents the synergies arising from cost savings and the opportunity to utilise the extended distribution network of the Group to leverage the marketing of acquired products.

In line with IAS 36 Impairment of Assets, goodwill is allocated to each operating segment (which may comprise more than one cash generating unit) which is expected to benefit from the combination synergies. These operating segments represent the lowest level within the Group at which goodwill is monitored for internal management purposes.

All goodwill is regarded as having an indefinite life and is not subject to amortisation under IFRS but is subject to an annual impairment assessment.

Brands

Brands have been attributed to reporting segments (as identified under IFRS 8 Operating Segments) as follows:-

 

Cider

Tennent’s

Third party

 

UK

UK

International

brands UK

Total

 

€m

€m

€m

€m

€m

 

At 1 March 2012

11.6

76.3

16.9

-

104.8

Acquisition of Vermont brands

-

-

159.0

-

159.0

Acquisition of Waverley wine brands

-

-

-

1.3

1.3

Additional consideration re previous year acquisition of Hornsby’s brands

-

-

0.4

-

0.4

Translation adjustment

(0.5)

(2.4)

0.9

(0.1)

(2.1)

At 28 February 2013

11.1

73.9

177.2

1.2

263.4

 

Translation adjustment

0.6

4.1

(6.6)

0.1

(1.8)

 

At 28 February 2014

11.7

78.0

170.6

1.3

261.6

Capitalised brands include the Tennent’s beer brands and the Gaymers cider brands acquired during the financial year ended 28 February 2010, the Hornsby’s cider brand acquired during the year ended 29 February 2012 and the Vermont cider brands and Waverley wine brands acquired during the financial year ended 28 February 2013. The Group completed the acquisition of the Vermont Hard Cider Company, LLC on 21 December 2012, which included the acquisition of a portfolio of brands, including the Woodchuck and Wyders cider brands. The value attributed to the acquisition of this portfolio of brands was €159.0m. The Group completed the acquisition of wine brands from Waverley TBS Limited for a consideration of £1.0m (€1.3m euro equivalent at date of acquisition) on 5 November 2012.

During the current financial year, the Group disposed of two high strength cider brands, Diamond White and White Star, for a nominal amount. These brands were originally acquired as part of the Gaymers cider business during the financial year ended 28 February 2010, no value was assigned to these brands on acquisition.

The Tennent’s, Gaymers and Vermont brands were valued at fair value on the date of acquisition in accordance with the requirements of IFRS 3 (2004) Business Combinations by independent professional valuers. The Hornsby’s cider brand and Waverley wine brands were valued at cost. The prior year adjustment to the valuation of the Hornsby’s cider brand related to the settlement of conditional consideration which was payable subject to the performance of the brand during a transitional period. Performance and consequently the valuation of the final settlement exceeded expectation resulting in an increase in the value of the brand of $0.6m (€0.4m euro equivalent at date of settlement) in the prior financial year.

Capitalised brands are regarded as having indefinite useful economic lives and therefore have not been amortised. The brands are protected by trademarks, which are renewable indefinitely in all major markets where they are sold and it is the Group’s policy to support them with the appropriate level of brand advertising. In addition, there are not believed to be any legal, regulatory or contractual provisions that limit the useful lives of these brands. Accordingly, the Directors believe that it is appropriate that the brands be treated as having indefinite lives for accounting purposes.

No intangible assets were acquired by way of government grant, there is no title restriction on any of the capitalised intangible assets and no intangible assets are pledged as security. There are no contractual commitments in relation to the acquisition of intangible assets at year-end.

Other intangible assets

Other intangible assets have been attributed to reporting segments (as identified under IFRS 8 Operating Segments) as follows:-

 

 

 

ROI

Third party brands UK

Total

 

€m

€m

€m

Cost

At 1 March 2012

-

1.8

1.8

Translation adjustment

-

(0.1)

(0.1)

 

At 28 February 2013

-

1.7

1.7

Acquisition of Gleeson

1.8

-

1.8

 

At 28 February 2014

1.8

1.7

3.5

 

Amortisation

At 1 March 2012

-

0.2

0.2

Charge for the year

-

0.1

0.1

 

At 28 February 2013

-

0.3

0.3

Charge for the year

0.1

0.1

0.2

 

At 28 February 2014

0.1

0.4

0.5

 

Net book value

At 28 February 2014

1.7

1.3

3.0

 

At 28 February 2013

-

1.4

1.4

Other intangible assets comprise the fair value of trade relationships acquired as part of the acquisition of Gleeson during the current financial year and 20 year distribution rights for third party beer products acquired as part of the acquisition of the Tennent’s business during the financial year ended 28 February 2010. These were valued at fair value on the date of acquisition in accordance with the requirements of IFRS 3 (2004) Business Combinations by independent professional valuers. The intangible assets have a finite life and are subject to amortisation on a straight line basis. The amortisation charge for the year ended 28 February 2014 with respect to intangible assets was €0.2m (2013: €0.1m).

Impairment testing

To ensure that goodwill and brands considered to have an indefinite useful economic life are not carried at above their recoverable amount, impairment reviews are performed comparing the carrying value of the assets with their recoverable amount using value-in-use computations. Impairment testing is performed annually or more frequently if there is an indication that the carrying amount may not be recoverable. Where the value in use exceeds the carrying value of the asset, the asset is not impaired.

As permitted by IAS 36 Impairment of assets, the value of the Group’s intangible assets (goodwill and brands) has been allocated to groups of cash generating units (referred to in this note as a business segment), which are not larger than an operating segment determined in accordance with IFRS 8 Operating segments. These business segments represent the lowest levels within the Group at which the associated goodwill and indefinite life brands are monitored for management purposes.

The recoverable amount is calculated in respect of each business segment using value-in-use computations based on estimated future cash flows discounted to present value using a discount rate appropriate to each cash generating unit and terminal values calculated on the assumption that cash flows continue in perpetuity.

The key assumptions used in the value-in-use computations are:-

  • Expected volume, net revenue and operating profit growth rates - cash flows for each business segment are based on detailed financial budgets and plans, formally approved by the Board, for years one to three,
  • Long term growth rate - cash flows after the first three years were extrapolated using a long term growth rate, on the assumption that cash flows for the first three years will increase at a nominal growth rate in perpetuity,
  • Discount rate.

The key assumptions were based on management assessment of anticipated market conditions for each business segment. A terminal growth rate of between 2.5% and 3.0% (2013: 2.5%) in perpetuity was assumed based on an assessment of the likely long term growth prospects for the sectors and geographies in which the Group operates. The resulting cash flows were discounted to present value using a range of discount rates between 8%-10% (2013: 8-12%); these rates are in line with the Group’s estimated pre-tax weighted average cost of capital for the three main geographies in which the Group operates (ROI, UK and USA), arrived at using the Capital Asset Pricing Model.

In formulating the budget and three year plan the Group takes into account historical experience, an appreciation of its core strengths and weaknesses in the markets in which it operates and external factors such as macro economic factors, inflation expectations by geography, regulation and expected changes in regulation (such as expected changes to duty rates and minimum pricing), market growth rates, sales price trend, competitor activity, market share targets and strategic plans and initiatives.

The Group has performed the detailed impairment testing calculations by operating segment with the following discount rates being applied:


Market

Discount rate

ROI

10%

UK

8%

International

8%

No impairment losses were recognised by the Group in the current or previous financial year.

Sensitivity analysis 


The impairment testing carried out at 28 February 2014 identified headroom in the recoverable amount of the brands and goodwill compared to their carrying values in all business segments. The value in use calculations indicate headroom in excess of €500m in respect of the ROI reporting segment and in excess of €350m in respect of the Tennent’s UK reporting segment, with all component business segments indicating significant headroom. The value in use calculations with respect to the Group’s Cider UK, International and Third Party Brands UK reporting segments also indicate significant headroom however the headroom with respect to some of the business segments within these operating segments is less than €15m, namely the Waverly wine business segment.

The key sensitivities for the impairment testing are net revenue and operating profit growth assumptions, discount rates applied to the resulting cashflows and the expected long term growth rates. For the purposes of performing sensitivity analysis, the underlying assumptions (net revenue, operating profit, discount and terminal growth rates) were adjusted negatively by 1 percentage point. Applying these individual assumptions, while holding all other assumptions constant, to the value in use computations did not indicate an impairment of the Group’s goodwill or brands.

14. EQUITY ACCOUNTED INVESTEES/ Financial assets

(a) Investment in equity accounted investees - Group

 

 

Wallaces Express Limited

Maclay

Group plc

Thistle Pub Company

Total

 

€m

€m

€m

€m

Investment in equity accounted investees

Carrying amount at 1 March 2012

-

-

-

-

Purchase price paid

-

2.5

0.4

2.9

Less derivative financial assets

-

(1.4)

-

(1.4)

Add derivative financial liabilities

-

1.0

0.2

1.2

Translation adjustment

-

(0.2)

(0.1)

(0.3)

Carrying amount at 28 February 2013

-

1.9

0.5

2.4

 

Purchase price paid

11.8

-

-

11.8

Less derivative financial asset

(1.2)

-

-

(1.2)

Add derivative financial liability

1.2

-

-

1.2

Acquisition costs paid

0.2

-

-

0.2

Share of profit/(loss) after tax

0.6

-

(0.1)

0.5

Translation adjustment

-

0.1

-

0.1

 

Carrying amount at 28 February 2014

12.6

2.0

0.4

15.0

Wallaces Express Limited

On 22 March 2013, the Group acquired 50% of the equity share capital of Wallaces Express Limited, Scotland’s largest wines and spirits wholesaler, for €11.8m (£10.0m). Acquisition costs of €0.2m were also incurred in respect of the transaction. Contribution for the period from date of acquisition of 50% of the equity share capital to 28 February 2014 was €0.6m.

Under the terms of this agreement, the Group entered into a call option arrangement enabling it to serve notice on Wallaces shareholders to acquire the remaining 50% of Wallaces at a predetermined price on 20 March 2015 or earlier at the Group’s option in the event of a breach of warranty by the Seller; and a put option granting Wallaces’ shareholders the right to serve notice on the Group to acquire the remaining 50% during the period January 2015 to March 2015 or earlier at the Sellers option in the event of a change of control, listing or insolvency of the buying company. The related derivative financial asset was valued at €1.2m while the related derivative financial liability was valued at €1.2m.

As outlined in further detail in note 29, Post Balance Sheet Events, under the terms of a new agreement, the Group acquired the remaining 50% of Wallaces Express Limited post the Group’s financial year end, on 18 March 2014.

Maclay Group plc

On 21 March 2012, the Group acquired a 25% equity investment in Maclay Group plc, a leading independent Scottish operator of managed public houses. The business primarily includes the operation of 15 wholly owned managed houses and 11 managed houses owned by two separate Enterprise Investment Schemes.

The total cost of the investment was £2.1m (€2.5m euro equivalent at date of investment) of which £1.6m related to the value of the investment. Also included in the initial cost was a contracted derivative financial asset valued at £1.3m and a contracted derivative financial liability valued at £0.8m. The derivative financial asset relates to a put option granted to the Group enabling it to sell its equity stake back to Maclay Group plc at a predetermined price at any time after the fifteenth anniversary of the acquisition, while the derivative financial liability relates to the granting of a call option to Maclay Group plc enabling it to buy back the Group’s equity interest at a predetermined price at any time in the first fifteen years after the acquisition date. The movement in the fair value of these derivatives in the current financial year was a loss of €0.1m (2013: less than €0.1m).

The Group is in a position to exercise significant influence over the operating and financial policies of the investment and accordingly has accounted for it as an associate. Associates are included in the financial statements of the Group using the equity method from the date of which significant influence is deemed to arise until such a time as such significant influence ceases to exist. Under the equity method, the Group income statement reflects the Group’s share of profit after tax of the associate. Investment in associates are carried in the Group balance sheet at cost and subsequently adjusted in respect of post-acquisition changes in the Group’s share of net assets, less any impairment in value. The financial result for the year attributable to the Group was less than €0.1m (2013: less than €0.1m).

Thistle Pub Company Limited

On 28 November 2012, the Group invested £0.3m (€0.4m euro equivalent at date of payment) in a joint venture with Maclay Group plc in Thistle Pub Company Limited. As part of the joint venture agreement, the Group granted Thistle Pub Company Limited and the Maclay Group plc a call option enabling either of them to purchase the Group’s share of the equity at a fixed price at any time in the first 15 years after the date the joint venture was formed. This call option has been valued at the acquisition date and resulted in the recognition of a £0.2m (€0.2m) financial liability. The movement in fair value of this derivative to 28 February 2014 was less than €0.1m (2013: less than €0.1m).

The joint venture purchased one public house in the prior financial year and three public houses in the current financial year; three of the four public houses had opened and commenced trading as at 28 February 2014 while the fourth commenced trading post the year end. In addition, the joint venture purchased an additional public house post year end which has yet to open.

Unrealised gains arising from transactions with equity accounted investees are eliminated to the extent of the Group’s interest in the equity. Unrealised gains arising from the Group’s trading relationship with equity accounted investees as at the year end date was less than €0.1m. Unrealised losses are eliminated in the same manner as unrealised gains, but only to the extent that there is no evidence of impairment in the Group’s interest in the entity.

(b) Investment in subsidiary undertakings - Company

 

2014

2013

 

€m

€m

 

Equity investment in subsidiary undertakings at cost

At beginning of year

977.1

968.8

Investment in subsidiary undertakings

-

5.3

Capital contribution in respect of share options granted to employees of subsidiary undertakings

0.8

3.0

 

At end of year

977.9

977.1

The total expense of €0.8m (2013: €3.0m) attributable to equity settled awards granted to employees of subsidiary undertakings has been included as a capital contribution in financial assets.

In the opinion of the Directors, the shares in the subsidiary undertakings are worth at least the amounts at which they are stated in the balance sheet. Details of subsidiary undertakings are set out in note 28.

15. INVENTORIES

 

2014

2013

 

€m

€m

 

Group

Raw materials & consumables

31.6

28.7

Finished goods & goods for resale

40.6

20.2

 

Total inventories at lower of cost and net realisable value

72.2

48.9

Inventory write-down recognised as an expense within operating costs amounted to €1.2m (2013: €0.8m). The high level of inventory write-down is primarily as a result of the write-off of inventory work in progress (‘WIP’) and packaging stocks following the transfer of production of the Hornsby’s brand to the VHCC cidery, and the discontinuation of some flavoured Hornsby’s ciders on integrating the VHCC business with the Group’s existing US business. Previously impaired inventory recovered during the financial year and recognised as exceptional income (note 6) amounted to €nil (2013: €1.0m).