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Notes to the Consolidated Financial Statements
O Heineken N.V. Report of the Report of the Financial Sustainability Other
OU Annual Report 2020 Introduction Executive Board Supervisory Board Statements Review Information
Goodwill impairment testing
For the purpose of impairment testing, goodwill in respect of Europe, Americas (excluding Brazil) and Asia
Pacific is allocated and monitored on a regional basis. For Brazil and subsidiaries within Africa, Middle East
Eastern Europe and Head Office, goodwill is allocated and monitored on an individual country basis. The total
amount of goodwill of €10,678 million (2019: €11,465 million) is allocated to each (group of) CGU as follows:
Goodwill per (group of) CGU
4,731 4,838
5,000
P 4,000
3,000
2,266
2,050
2,000
Europe
272 352
2,740
1
Americas
(excluding Brazil)
Brazil Africa, Middle East Asia Pacific
Eastern Europe
480 480
Head Office
The decrease in goodwill of €787 million compared to 2019, mainly relates to movement in exchange rates of
€759 million and impairment losses of €39 million recognised in the current year.
The carrying amount of a CGU is compared to the recoverable amount of the CGU. The recoverable amounts
of the (group of) CGUs are based on the higher of the fair value less costs of disposal (FVLCD) and value in use
(VIU) calculations. CGUs for which the recoverable amount is based on a VIU model represent more than 99%
of goodwill. VIU is determined by discounting the future cash flows generated from the continuing use of the
CGU using a pre-tax discount rate.
The key assumptions used for the value in use calculations are as follows:
- Cash flows are projected based on actual operating results and the 3-year business plan. Cash flows for
a further 7-year period (except for Europe, where a further 2-year period is applied) are extrapolated
using an expected annual per country volume growth rate, which are based on external sources.
Management believes that this period reflects the long-term development of the local beer business
and is based on past experiences.
- The beer price growth per year after the forecast period is assumed to be a country specific expected
annual long-term inflation, which is based on external sources.
- Cash flows after the first 10-year period (Europe 5-year) are extrapolated using a perpetual growth rate equal
to the expected 10-year compounded average 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
applied for years
2024-2030
Expected volume
growth rates
applied for years
2024-2030
Europe
6.6
1.9
1.4
Americas (excluding Brazil)
9.7
2.9
3.8
Brazil
12.9
3.1
0.3
Africa, Middle East Eastern Europe
12.8 - 25.0
4.9 - 9.4
2.2 - 8.6
Asia Pacific
11.7
3.3
3.8
Head Office
6.5
1.9
1.4
CGUs for which the recoverable amount is based on a FVLCD model, represent less than 1% of goodwill.
Impairment losses
The annual goodwill impairment test did not result in an impairment loss for the current year
(2019: €6 million). The impairment test required as a result of the identification of impairment indicators,
however resulted in an impairment on goodwill of €39 million and €427 million (2019: €14 million) for
intangible assets other than goodwill, which was charged to profit or loss (refer to note 8.3).
Sensitivity to changes in assumptions
The outcome of a sensitivity analysis of a 100 basis points adverse change in key assumptions
(i.e. lower growth rates or higher discount rates respectively) did not result in a materially different
outcome for the impairment test and the headroom for no CGUs would have been reduced to nil.
Brands, customer-related and contract-based intangibles
The main brands capitalised are the brands acquired in various acquisitions. The main customer-related
and contract-based intangibles relate to customer relationships (constituted either by way of a contractual
agreement or by way of non-contractual relations) and re-acquired rights.
Accounting estimates and judgements
The cash flow projections used in the value in use calculations for goodwill impairment testing contain
various judgements and estimations as described in the key assumptions for the VIU calculations.
For intangible assets, other than goodwill, estimates are required to determine the (remaining) useful lives.
Useful lives are determined based on the market position (for brands), estimated remaining useful life of the
customer relationships or the period of the contractual arrangements, or estimates on technological and
commercial developments (for software/development expenditure).
Amortisation is charged to profit or loss on a straight-line basis over the estimated useful life.
HEINEKEN believes that straight-line depreciation most closely reflects the expected pattern of consumption
of the future economic benefits embodied in the intangible asset.
