94
Notes to the Consolidated Financial Statements (continued)
15. Intangible assets (continued)
Brands, customer-related and contract-based intangibles
Impairment tests for cash-generating units containing goodwill
Sensitivity to changes in assumptions
Heineken NV.
Report of the
Report of the
Financial
Sustainability
Other
Annual Report 2016
Introduction
Executive Board
Supervisory Board
Statements
Review
Information
The main brands capitalised are the brands acquired in various acquisitions such as Fosters, Strongbow, Dos Equis, Tiger and Bintang. The main
customer-related and contract-based intangibles relate to customer relationships with retailers in Mexico and Asia Pacific (constituted either
by way of a contractual agreement or by way of non-contractual relations) and reacquired rights.
For the purpose of impairment testing, goodwill in respect of Europe, the Americas (excluding Brazil) and Asia Pacific is allocated and monitored
on a regional basis. For Brazil and subsidiaries within Africa, Middle East and Eastern Europe and Head Office, goodwill is allocated and monitored
on an individual country basis. The carrying amounts of goodwill allocated to each (group of) CGU(s) are as follows:
In millions of EUR 2016 2015
Europe
4,788
5,060
The Americas (excluding Brazil)
2,115
2,124
Brazil
78
62
Africa, Middle East and Eastern Europe (aggregated)
414
508
Asia Pacific
3,154
3,090
Head Office
480
480
11,029
11,324
Throughout the year, goodwill decreased mainly due to net foreign currency differences.
The recoverable amounts of the (group of) CGUs are based on value in use calculations. Value in use was determined by discounting the future cash
flows generated from the continuing use of the unit using a pre-tax discount rate.
The key assumptions used for the value in use calculations are as follows:
- Cash flows were projected based on actual operating results and the three-year business plan. Cash flows for a further seven-year period (except
for Europe, where a further two-year period was applied) were extrapolated using expected annual per country volume growth rates, which are
based on external sources. Management believes that this period is justified due to the long-term development of the local beer business and
past experiences.
- The beer price growth per year after the first three-year period is assumed to be at specific per country expected annual long-term inflation,
based on external sources.
- Cash flows after the first ten-year (Europe five-year) period were extrapolated using a perpetual growth rate equal to the expected annual
long-term inflation, in order to calculate the terminal recoverable amount.
- A per CGU-specific pre-tax Weighted Average Cost of Capital (WACC) was applied in determining the recoverable amount of the units.
The values assigned to the key assumptions used for the value in use calculations are as follows:
In
Pre-tax WACC
Expected
annual
long-term inflation
2020-2026
Expected
volume
growth rates
2020-2026
Europe
9.3
1.8
0.5
The Americas (excluding Brazil)
13.6
3.2
3.4
Brazil
16.9
4.9
3.4
Africa, Middle East and Eastern Europe
15.4-24.4
2.7-12.2
0.7-8.7
Asia Pacific
14.5
4.6
3.2
Head Office
9.4
1.8
0.5
The outcome of these impairment tests in 2016 did not result in an impairment loss (2015: nil) being charged to profit or loss.
The outcome of a sensitivity analysis of a 100 basis points adverse change in key assumptions (lower growth rates or higher discount rates
respectively) did not result in a materially different outcome of the impairment test.