58 Independent Auditors’ Report to the Members of Finsbury Food Group Plc/Continued


Finsbury Food Group Annual Report and Accounts 2020


Key audit matter


Goodwill impairment assessment (Group) At 27 June 2020, the Consolidated Statement of Financial Position includes £73.2 million of goodwill (2019: £80.7 million).


In accordance with the requirements of IFRS, management has performed impairment reviews in relation to the goodwill held in the Group’s cash generating units (CGUs). Management has prepared value in use calculations for each of the CGUs using board approved strategic plans. The impairment reviews include significant estimates and judgements in respect of future growth rates and cash flows, and the discount rate employed. The Ultrapharm business has developed slower than expected and additional resource has been invested into both the UK and Polish businesses. Commercial issues now exacerbated by Covid-19 have adversely affected cash flows and as a result an impairment charge of £7.5 million has been recognised.


How our audit addressed the key audit matter


We obtained the relevant CGU cash flow forecasts supporting management’s calculation of value in use and evaluated the appropriateness of key assumptions. We assessed the methodology used by management in performing the assessments and challenged key inputs. Our procedures included:


• Verifying the accuracy of the underlying calculations in the model and agreeing the cash flow forecasts to the plan approved by the Board;


• Evaluating the appropriateness of forecast cash flows by understanding management’s process for forecasting, examining the support for forecast cash flows and assessing CGU specific cash flow assumptions such as testing the exclusion of cash flows to improve or enhance the CGU’s performance;


• Evaluating the appropriateness of the projected revenue growth rates used, both over the short-term to 2023 and over the longer-term, including assessing the assumptions over the impact of Covid-19 on trading;


• Consideration of prior year and current performance in comparison to projected results;


• Considering the impact of a range of sensitivities to assess the impact of reasonably possible changes in key assumptions to those used by management;


• Evaluating the appropriateness of discount rates used, which included comparing the rate used to a range provided by our valuation experts;


• Evaluating other key inputs to the cash flows, including the forecast margins and capital expenditure; and


• Reviewing management’s disclosures in the Financial Statements.


We believe that the assumptions in the value in model and therefore the impairment recorded are reasonable. We also believe that the disclosures in the Financial Statements in respect of sensitivities that would result in further impairment are appropriate.


However, based upon this work, we concur with the assessment performed and with the impairment charge recognised in respect of goodwill. We consider that the carrying value of the remaining goodwill balance is materially correct and we believe that the disclosures in the Financial Statements are appropriate.


Recoverability of the Company investments in subsidiaries (Company) At 27 June 2020, the Company’s Statement of Financial Position included £112.0 million of investments in subsidiaries (2019: £118.5m).


In accordance with the requirements of IFRS, management has performed an analysis comparing the carrying amount of the investments with the calculated value in use (noted above). As a result of this an impairment of £6.5 million has been noted in relation to investments in relation to Ultrapharm and Anthony Alan Foods of £3.5 million and £3.0 million respectively. The impairment reviews include significant estimates and judgements in respect of future growth rates and cash flows, and the discount rate employed. The Ultrapharm business has developed slower than expected and additional resource has been invested into both the UK and Polish businesses which has resulted in an impairment charge of £3.0 million being recognised. For Anthony Alan Foods there are no future cash flows to consider hence an impairment charge of £3.0 million is recognised to write the balance of this investment down to nil.


We obtained the relevant subsidiary’s cash flow forecasts supporting management’s assessments and evaluated the appropriateness of key assumptions. We assessed the methodology used by management in performing the assessments and challenged and evaluated key inputs including:


• Verifying the accuracy of the underlying calculations in the model and agreeing the cash flow forecasts to the plan approved by the Board;


• Evaluating the appropriateness of forecast cash flows by understanding management’s process for forecasting, examining the support for forecast cash flows and assessing subsidiary or CGU specific cash flow assumptions such as testing the exclusion of cash flows to improve or enhance the subsidiary or CGU performance;


• Evaluating the appropriateness of the projected revenue growth rates used, both over the short-term to 2023 and over the longer-term, including assessing the assumptions over the impact of Covid-19 on trading;


• Consideration of prior year and current performance in comparison to projected results;


• Considering the impact of a range of sensitivities to assess the impact of reasonably possible changes in key assumptions to those used by management;


• Evaluating the appropriateness of discount rates used, which included comparing the rate used to a range provided by our valuation experts;


• Evaluating other key inputs to the cash flows, including the forecast margins and capital expenditure; and


• Reviewing management’s disclosures in the Financial Statements.


Based on this work, we concur with the assessment performed and with the impairment charge recognised. We consider the carrying value of the investment balance to be materially correct.


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