Arla Foods Consolidated Annual Report 2021
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Arla Foods Consolidated Annual Report 2021 / Consolidated Financial Statements / Notes
Capital employed
3.1 INTANGIBLE ASSETS
Contents
III
Goodwill
Accounting policies
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.
Table 3.1.b Goodwill split by commercial segment and country
(EURM)
2021
2020
3.1.1 Impairment test of goodwill
and GOODWILL SUPPORTED BY FUTURE26 OUTLOOK
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
flows derived from forecasts and long-term strategic
targets. Future cash flows and earnings targets are
projected for individual cash-generating units, based
on expected developments identified in the Future26
process as well as past experience. The impairment tests
do not include revenue growth in the terminal value.
Procedure for impairment tests
Impairment tests of goodwill are based on an assessment
of their value in use. Milk costs in the forecast are
recognised at a milk price that corresponds to the price
at the time the test was performed and longer-term. The
key operational assumption is future profitability based
on a combination of the impact from moving milk intake
into value-add products and more profitable markets and
operational efficiency initiatives.
Test results
There was no identified impairment of goodwill at year-
end. Sensitivities to changes in milk prices and discount
rates were calculated. The discount rate could rise up to
3 percentage points in the UK and 1 percentage point
in Finland before goodwill could be at risk of being
impaired. Goodwill allocated to other markets was
tested applying similar assumptions. It is not likely that
any reasonable change in those assumptions would
lead to an impairment.
UK
Finland
Sweden
Other
Europe total
MENA
International
Argentina
Arla Foods Ingredients
Total
498
462
40
40
Table 3.1.1 Impairment tests
(EURM)
Applied key assumptions
22
22
Discount rate,
Discount rate,
63
63
net of tax
before tax
623
587
2021
UK
6.5%
7.2%
78
72
Finland
5.6%
6.0%
78
72
Sweden
6.1%
6.7%
Europe other
5.7%
6.3%
9
8
MENA
12.0%
13.7%
9
8
Arla Foods ingredients
6.3%
7.0%
710
667
2020
UK
6.1%
6.8%
Finland
5.5%
6.0%
Sweden
5.9%
6.6%
Europe other
5.4%
6.0%
MENA
11.6%
13.0%
Arla Foods ingredients
6.0%
6.7%View entire presentation