Arla Foods Annual Report 2020
Management Review
Our Strategy
Our Brands and Commercial Segments
Our Responsibility Our Governance
Our Performance Review Our Consolidated Financial Statements
Our Consolidated Environmental, Social and Governance Data
Capital employed
3.1 INTANGIBLE ASSETS
Accounting policies
Goodwill
Goodwill represents the premium paid by Arla above
the fair value of the net assets of an acquired company.
On initial recognition, goodwill is recognised at cost.
Goodwill is not amortised, but is subsequently measured
at cost less any accumulated impairment. The carrying
amount of goodwill is allocated to the group's
cash-generating units that follow the management
structure and internal financial reporting. Cash-generating
units are the smallest group of assets which can
generate independent cash inflows.
Licences and trademarks
Licences and trademarks are initially recognised at cost.
The cost is subsequently amortised on a straight-line
basis over their expected useful lives.
IT and other development projects
Costs incurred during the research or exploration phase
in carrying out general assessments of requirements and
available technologies are expensed as incurred. Directly
attributable costs incurred during the development stage
for IT and other development projects relating to the
design, programming, installation and testing of projects
before they are ready for commercial use are capitalised
as intangible assets. Such costs are only capitalised
provided the expenditure can be measured reliably, the
project is technically, and commercially viable, future
economic benefits are probable, and the group intends
to and has sufficient resources to complete and use the
asset. IT and other development projects are amortised
on a straight-line basis over five to eight years.
3.1.1 Impairment test of goodwill
Goodwill supported by strong results
Goodwill is allocated to relevant cash-generating units,
primarily to our activities in the UK within the commercial
segment Europe.
Basis for impairment test and applied estimates
Impairment tests are based on expected future cash
flow derived from forecasts and targets. Revenue growth
rates are projected for individual markets, based on
expected developments as well as past experience.
The impairment tests do not include revenue growth in
the terminal value. A new strategy is expected to be
launched in early 2021, it is however not expected to
have any adverse impact on basis for the impairment test.
Procedure for impairment tests
Impairment tests of goodwill are based on an assessment
of their value in use. Milk costs are recognised at a milk
price that corresponds to the price at the time the
test is performed. In the applied forecasts, the key
operational assumption is future profitability based on a
combination of the impact from moving milk intake into
value added products and more profitable markets.
Test results
There are no identified impairments of goodwill at the
year-end. Sensitivities to changes in milk prices and
discount rates were calculated. The discount rate could
rise up to 5 percentage points before goodwill in the UK
could be at risk of being impaired. Goodwill allocated to
other markets was tested applying consistent
assumptions.
Table 3.1.b Goodwill split by commercial segment and country
(EURM)
UK
Finland
Sweden
Other *
Europe total
MENA
International
Argentina
Arla Foods Ingredients
Total
*Europe Other includes an immaterial amount of goodwill related to Russia
84 ARLA FOODS ANNUAL REPORT 2020
2020
2019
462
489
Table 3.1.1 Impairment tests
(EURM)
40
40
22
21
63
61
2020
587
611
UK
Finland
72
80
Sweden
72
80
Europe other*
MENA
8
9
Arla Foods ingredients
8
9
667
700
2019
UK
Finland
Sweden
Europe other*
Arla Foods ingredients
*Europe other includes an immaterial amount of goodwill related to Russia
Applied key assumptions
Discount rate,
Discount rate,
net of tax
before tax
6.1%
6.8%
5.5%
6.0%
5.9%
6.6%
5.4%
6.0%
11.6%
13.0%
6.0%
6.7%
7.0%
7.8%
6.0%
6.7%
6.3%
7.0%
5.9%
6.6%
7.0%
7.8%View entire presentation